Shaw Communications Inc. (TSX:SJR.B) (TSX:SJR.PR.A) (TSX:SJR.PR.B)
(NYSE:SJR) (TSX-V:SJR.A) announces consolidated financial and
operating results for the quarter ended February 28, 2018. Revenue
from continuing operations for the quarter of $1.36 billion
increased 12.4% over the comparable period led by Wireless and
Business results. Operating income before restructuring costs and
amortization1 for the quarter of $501 million was consistent with
results in the second quarter of fiscal 2017.
“Our strong second quarter results clearly show
that Canadians have a demand for a truly competitive wireless
option,” said Brad Shaw, Chief Executive Officer. “Our strategy to
grow our Wireless business has been simple: create a wireless
provider that offers fairness and value to Canadians and that
respects people’s desire to connect when they want, how much they
want, and on the iconic devices they want.”
“We are successfully executing our Wireless
plan. This quarter, which included a very busy holiday season, we
set a record with more than 93 thousand net postpaid subscriber
additions. The confidence that new and existing customers have in
our service has only strengthened our resolve to continue investing
in our network while growing our market share through pricing and
packaging options, such as our Big Gig data plans,” said Brad
Shaw.
Shaw continues to improve the Wireless
experience for its customers including an expanded distribution
platform through our first agreement with a national
retailer. Launching in April, Loblaws’ ‘The Mobile Shop’ will
sell Freedom Mobile handsets and service plans in approximately 100
of their locations across Canada. In addition, another
significant network milestone has been achieved with the refarm of
10 MHz of AWS-1 spectrum now complete across Freedom Mobile’s
footprint. The Company continues to actively roll out its 2500 and
700 MHz spectrum which further improves the network quality and
will enable additional features such as VoLTE.
Brad Shaw continued: “We commend the federal
government on its support for strong and sustainable competition,
as reflected in the recent announcement of a set-aside for the
upcoming 600 MHz auction. This decision will help ensure a
future for wireless competition in Canada and is a significant win
for all Canadians, who deserve more from their wireless
services.”
“In the two years since we acquired our Wireless
business, we have made significant investments and improvements to
our network and our service. We are excited by the tremendous
growth potential of this business, and, as shown by our results
this quarter, we are committed to delivering a strong and
competitive wireless alternative that will benefit all Canadians,”
said Brad Shaw.
Selected Financial
Highlights
| |
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars except per share amounts) |
2018 |
|
2017 |
|
Change % |
|
2018 |
|
2017 |
|
Change % |
| Revenue |
1,355 |
|
1,206 |
|
12.4 |
|
2,604 |
|
2,422 |
|
7.5 |
| Operating income before
restructuring costs and amortization 1 |
501 |
|
503 |
|
(0.4) |
|
982 |
|
1,007 |
|
(2.5) |
| Operating margin 1 |
37.0 |
% |
41.7 |
% |
(4.7pts) |
|
37.7 |
% |
41.6 |
% |
(3.9pts) |
| Free cash flow 1 |
135 |
|
147 |
|
(8.2) |
|
187 |
|
305 |
|
(38.7) |
| Net income (loss) from
continuing operations |
(164 |
) |
150 |
|
(>100.0) |
|
(44 |
) |
244 |
|
(>100.0) |
| Loss from discontinued
operations, net of tax |
- |
|
(3 |
) |
>100.0 |
|
(6 |
) |
(7 |
) |
14.3 |
| Net income (loss) |
(164 |
) |
147 |
|
(>100.0) |
|
(50 |
) |
237 |
|
(>100.0) |
| Diluted
earnings (loss) per share |
(0.33 |
) |
0.30 |
|
|
|
(0.11 |
) |
0.48 |
|
|
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures in the accompanying
MD&A”.
Net loss for the quarter of $164 million
compared to net income of $147 million in the second quarter of
fiscal 2017. The decrease substantially reflects $417 million
restructuring related costs recorded during the second quarter of
2018 in respect to the Total Business Transformation (“TBT”)
initiative and related Voluntary Departure Program (“VDP”) accepted
by eligible employees, as further described below.
Free cash flow1 for the quarter of $135 million
compared to $147 million in the prior year. The decrease for the
quarter was largely due to planned higher capital
spending.
Total Wireless revenue of $290 million improved
106% year-over-year as equipment revenue of $148 million compared
to $24 million in the second quarter of fiscal 2017 and service
revenue improved 21% to $142 million. Wireless operating income
before restructuring costs and amortization of $36 million improved
24% year-over-year primarily due to the growth in subscribers and
higher average revenue per unit (“ARPU”), partially offset by
incremental costs from higher subscriber loading in the period and
margin pressure from significantly higher equipment sales.
In the quarter, the Company added approximately
89,700 net Wireless revenue generating units (“RGUs”) - (postpaid
+93,500/prepaid -3,800), an increase of more than 2.5 times the
33,400 net additions achieved in the second quarter of fiscal 2017.
The increase in the customer base reflects customer demand for the
iPhone combined with our device pricing and packaging options and
the ongoing execution of our wireless growth strategy to improve
the network and customer experience.
Second quarter Wireline revenue and operating
income before restructuring costs and amortization of $1.07 billion
and $465 million remained flat and declined 1.9%, respectively.
While revenue held flat, the year-over-year decline in Wireline
operating income before restructuring costs and amortization
continues to be impacted by a challenging Consumer video
environment, including a declining customer base and a general
shift into lower priced video packages. The decline in Video and
Phone subscribers more than offset the positive impact of continued
Internet growth. Shaw Business delivered another solid
quarter, with second quarter revenue up 5.3% year-over-year to $140
million.
Wireline RGUs declined by approximately 25,600
in the quarter compared to a loss of approximately 6,900 in the
second quarter of 2017. Internet gains of approximately 5,500 in
the quarter were more than fully offset by video, phone and
satellite RGU losses.
In the quarter, the Company introduced TBT, a
multi-year initiative designed to reinvent Shaw’s operating model
to better meet the evolving needs and expectations of consumers and
businesses by reducing staff, optimizing the use of resources and
maintaining and ultimately improving customer service. Three key
elements of the transformation are to: 1) shift customer
interactions to digital platforms; 2) drive more self-install and
self-serve; and, 3) streamline the organization that builds and
services the networks. As part of the TBT initiative, the Company
also plans to reduce input costs, consolidate functions, and
streamline processes, which is expected to create operational
improvements across the business allowing it to evolve into a more
efficient organization.
As a first step in the TBT, the VDP was offered
to eligible employees. The outcome of the program had approximately
3,300 Shaw employees accepting the VDP package representing
approximately 25% of all employees. As part of the program design,
the majority of customer-facing employees (i.e., Customer Care,
Retail, Sales) were not eligible to participate in the VDP. A
large portion of employees who elected to participate in the VDP
are in functions that will be addressed through the aforementioned
key elements of the TBT and Shaw has control over the timing of
employee departures across the Company through an actively managed,
orderly transition over the next 18 months. In select
functions, the Company determined that some employees will
transition over a 24-month period, an extension from the 18-month
period initially expected. Approximately 1,200 employees will be
exiting before the end of fiscal 2018.
In connection with various TBT activities,
including the VDP, Shaw has incurred a restructuring charge of $417
million in the second quarter of fiscal 2018, primarily related to
severance and other employee related costs, as well as additional
costs directly associated with the TBT initiative. While the
restructuring charge has been recognized in the second quarter of
fiscal 2018 results, the actual timing of employee payments related
to the charge will occur over a 24-month period, starting March 29,
2018. The Company does not anticipate the full-year TBT
restructuring costs to exceed $450 million.
The anticipated annualized savings, which
include reductions in operating expenses and capital expenditures
(i.e. labour costs that can be identified or associated with a
capital project), related to the VDP, are expected to be
approximately $215 million and will be fully realized in fiscal
2020. Shaw expects these cost reductions to be weighted 60% to
operating expenses, being approximately $130 million, and 40% to
capital expenditures, being approximately $85 million (compared to
the $225 million equally weighted estimate of 50% operating
expenses and 50% capital expenditures initially estimated at the
end of the VDP). VDP related cost reductions in fiscal 2018
are expected to be approximately $48 million, of which
approximately $40 million will be attributed to operating expenses
and approximately $8 million attributed to capital
expenditures. See also “Introduction”, “Other Income and
Expense Items”, “Caution Concerning Forward Looking Statements” and
“Risks and Uncertainties” in the accompanying Management’s
Discussion and Analysis (“MD&A”) for a discussion of the TBT,
the VDP and the risks and assumptions associated therewith.
The Company confirms that it remains on track to
meet its fiscal 2018 guidance which includes consolidated operating
income before restructuring costs and amortization growing to
approximately $2.1 billion – an increase of approximately 5% over
fiscal 2017; capital investments of approximately $1.38 billion;
and free cash flow1 of approximately $375 million. Shaw’s
guidance confirmation includes assumptions related to cost
reductions that will be achieved through TBT initiatives
(specifically the VDP); roaming cost reductions of approximately
$12 million expected to be realized in the third quarter of fiscal
2018 associated with the CRTC finalizing wholesale mobile wireless
roaming rates; and short-term incremental costs associated with
growth in Wireless handset sales. See also “Caution Concerning
Forward Looking Statements” in the accompanying MD&A.
Brad Shaw concluded, “Our company is at a
pivotal moment and we are solidly committed to our long-term growth
strategy to capitalize on efficiencies, streamline processes and
improve our business through the Total Business Transformation
initiative. Our teams of dedicated people are working every
day to enhance our customers’ experiences – by building on the
strengths and potential of our Wireless operations while creating
an operating model in our Wireline business that allows us to
improve and streamline our service.”
Shaw Communications Inc. is a leading Canadian
connectivity company. The Wireline division consists of Consumer
and Business services. Consumer serves residential customers with
broadband Internet, Shaw Go WiFi, video and digital phone. Business
provides business customers with Internet, data, WiFi, digital
phone and video services. The Wireless division provides wireless
voice and LTE-Advanced data services through an expanding and
improving mobile wireless network infrastructure.
Shaw is traded on the Toronto and New York stock
exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX
- SJR.B, SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For
more information, please visit www.shaw.ca
The accompanying MD&A forms part of this
news release and the “Caution concerning forward-looking
statements” applies to all the forward-looking statements made in
this news release.
For more information, please contact:Shaw
Investor Relations Investor.relations@sjrb.ca
|
1 See definitions and
discussion under “Non-IFRS and additional GAAP measures” in the
accompanying MD&A. |
MANAGEMENT’S DISCUSSION AND
ANALYSISFor the three and six months ended
February 28, 2018
April 12, 2018
Contents
|
Introduction |
9 |
|
Selected financial and operational highlights |
11 |
|
Overview |
13 |
|
Outlook |
15 |
|
Non-IFRS and additional GAAP measures |
15 |
|
Discussion of operations |
18 |
|
Supplementary quarterly financial information |
22 |
|
Other income and expense items |
23 |
|
Financial position |
24 |
|
Liquidity and capital resources |
25 |
|
Accounting standards |
28 |
|
Related party transactions |
29 |
|
Financial instruments |
30 |
|
Risk and uncertainties |
30 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”), dated April 12, 2018, should be read in
conjunction with the unaudited interim Consolidated Financial
Statements and Notes thereto for the quarter ended February 28,
2018 and the 2017 Annual Consolidated Financial Statements, the
Notes thereto and related MD&A included in the Company’s 2017
Annual Report. The financial information presented herein has been
prepared on the basis of International Financial Reporting
Standards (“IFRS”) for interim financial statements and is
expressed in Canadian dollars unless otherwise indicated.
References to “Shaw”, the “Company”, “we”, “us” or “our” mean Shaw
Communications Inc. and its subsidiaries and consolidated entities,
unless the context otherwise requires.
Caution concerning forward-looking
statements
Statements included in this MD&A that are
not historic constitute “forward-looking statements” within the
meaning of applicable securities laws. Such statements can
generally be identified by words such as “anticipate”, “believe”,
“expect”, “plan”, “intend”, “target”, “goal” and similar
expressions (although not all forward-looking statements contain
such words). Forward looking statements in this MD&A include,
but are not limited to statements related to:
- future capital expenditures;
- proposed asset acquisitions and dispositions;
- expected cost efficiencies;
- financial guidance and expectations for future
performance;
- business and technology strategies and measures to implement
strategies;
- the Company’s equity investments, joint ventures and
partnership arrangements;
- competitive strengths;
- expected project schedules, regulatory timelines,
completion/in-service dates for the Company’s capital and other
projects;
- expected growth in subscribers and the products/services to
which they subscribe;
- the cost of acquiring and retaining subscribers and deployment
of new services;
- the restructuring charges (related primarily to severance and
employee related costs) expected to be incurred and the timing of
such charges in connection with the Company’s Total Business
Transformation (“TBT”) initiative;
- the anticipated annual cost reductions related to the Voluntary
Departure Program (“VDP”) (including reductions in operating and
capital expenditures) and the timing of realization thereof;
- the impact that the employee exits will have on Shaw’s business
operations;
- outcome of the TBT initiative, including the timing thereof and
the total savings at completion; and
- expansion and growth of the Company’s business and operations
and other goals and plans.
All of the forward-looking statements made in
this report are qualified by these cautionary statements.
Forward-looking statements are based on
assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances as of the
current date. The Company’s management believes that its
assumptions and analysis in this MD&A are reasonable and that
the expectations reflected in the forward-looking statements
contained herein are also reasonable based on the information
available on the date such statements are made and the process used
to prepare the information. These assumptions, many of which are
confidential, include but are not limited to management
expectations with respect to:
- general economic, market and business conditions;
- future interest rates;
- previous performance being indicative of future
performance;
- future income tax and exchange rates;
- technology deployment;
- future expectations and demands of our customers;
- subscriber growth;
- short-term incremental costs associated with growth in Wireless
handset sales;
- cost reductions associated with the CRTC finalizing wholesale
mobile wireless roaming rates;
- pricing, usage and churn rates;
- availability of devices;
- content and equipment costs;
- industry structure, conditions and stability;
- government regulation;
- the completion of proposed transactions;
- the TBT initiative being completed in a timely and
cost-effective manner and yielding the expected results and
benefits, including: (i) resulting in a leaner, more integrated and
agile company with improved efficiencies and execution to better
meet Shaw’s consumers’ needs and expectations (including the
products and services offered to its customers) and (ii) realizing
the expected cost reductions;
- the Company being able to complete the employee exits pursuant
to the VDP with minimal impact on business operations within the
anticipated timeframes and for the budgeted amount;
- the cost estimates for any outsourcing requirements and new
roles in connection with the VDP; and
- the integration of recent acquisitions.
You should not place undue reliance on any
forward-looking statements. Many risk factors, including
those not within the Company's control, may cause the Company's
actual results to be materially different from the views expressed
or implied by such forward-looking statements, including but not
limited to:
- changes in general economic, market and business
conditions;
- changing interest rates, income taxes and exchange rates;
- changes in the competitive environment in the markets in which
the Company operates and from the development of new markets for
emerging technologies;
- changing industry trends, technological developments, and other
changing conditions in the entertainment, information and
communications industries;
- the Company’s failure to execute its strategic plans and
complete capital and other projects by the completion date;
- the Company’s failure to grow subscribers;
- the failure to realize roaming cost reductions;
- the Company’s failure to close any transactions;
- the Company’s failure to achieve cost efficiencies;
- the Company’s failure to implement the TBT initiative as
planned and realize the anticipated benefits therefrom, including:
(i) the failure of the TBT to result in a leaner, more integrated
and agile company with improved efficiencies and execution to
better meet Shaw’s consumers’ needs and expectations (including the
products and services offered to its customers) and (ii) the
failure to realize the expected cost reductions;
- the Company’s failure to complete employee exits pursuant to
the VDP with minimal impact on operations;
- technology, cyber security and reputational risks;
- opportunities that may be presented to and pursued by the
Company;
- changes in laws, regulations and decisions by regulators that
affect the Company or the markets in which it operates;
- the Company’s status as a holding company with separate
operating subsidiaries; and
- other factors described in this MD&A under the heading
“Risks and Uncertainties” and in the MD&A for the year ended
August 31, 2017 under the heading “Known events, Trends, Risks, and
Uncertainties”.
The foregoing is not an exhaustive list of all
possible risk factors.
Should one or more of these risks materialize,
or should assumptions underlying the forward-looking statements
prove incorrect, actual results may vary materially from those
described herein.
This MD&A provides certain future-oriented
financial information or financial outlook (as such terms are
defined in applicable securities laws), including the financial
guidance and assumptions disclosed under “Outlook”, the expected
annualized savings to be realized from the VDP and the anticipated
TBT restructuring costs for fiscal 2018. Shaw discloses this
information because it believes that certain investors, analysts
and others utilize this and other forward-looking information in
order to assess Shaw's expected operational and financial
performance and as an indicator of its ability to service debt and
pay dividends to shareholders. The Company cautions that such
financial information may not be appropriate for this or other
purposes.
Any forward-looking statement speaks only as of
the date on which it was originally made and, except as required by
law, the Company expressly disclaims any obligation or undertaking
to disseminate any updates or revisions to any forward-looking
statement to reflect any change in related assumptions, events,
conditions or circumstances. All forward looking statements
contained in this MD&A are expressly qualified by this
statement.
Non-IFRS and additional GAAP
measures
Certain measures in this MD&A do not have
standard meanings prescribed by IFRS and are therefore considered
non-IFRS measures. These measures are provided to enhance the
reader’s overall understanding of our financial performance or
current financial condition. They are included to provide
investors and management with an alternative method for assessing
our operating results in a manner that is focused on the
performance of our ongoing operations and to provide a more
consistent basis for comparison between periods. These measures are
not in accordance with, or an alternative to, IFRS and do not have
standardized meanings. Therefore, they are unlikely to be
comparable to similar measures presented by other
entities.
Please refer to “Non-IFRS and additional GAAP
measures” in this MD&A for a discussion and reconciliation of
non-IFRS measures, including operating income before restructuring
costs and amortization and free cash flow.
Introduction
In fiscal 2018, our team set out to reach
several new milestones on the journey towards becoming a leading
Canadian connectivity company. We have taken purposeful
strides to evolve Shaw’s value proposition of providing leading and
innovative products and services, drive operational momentum and
enhance our customers’ connectivity experience. From
technology to network deployment, marketing to product pricing and
packaging, and billing to service delivery, we are developing a
connectivity experience made possible through converging platforms
that are designed to meet the evolving demands of our
customers.
In the quarter, the Company introduced TBT, a
multi-year initiative designed to reinvent Shaw’s operating model
to better meet the changing tastes and expectations of consumers
and businesses by reducing staff, optimizing the use of resources,
and maintaining and ultimately improving customer service. Three
key elements of TBT are to: 1) shift customer interactions to
digital platforms; 2) drive more self-install and self-serve; and,
3) streamline the organization that builds and services the
network. As part of the TBT initiative, the Company also plans to
reduce input costs, consolidate functions, and streamline
processes, which is expected to create operational improvements
across the business allowing it to evolve into a more efficient
organization.
As a first step in the TBT, the VDP was offered
to eligible employees. The outcome of the program had approximately
3,300 Shaw employees accepting the offer representing approximately
25% of all employees. As part of the program design, the majority
of customer-facing employees (i.e., Customer Care, Retail, Sales)
were not eligible to participate in the VDP. A large portion
of employees who elected to participate in the VDP are in functions
that will be addressed through the aforementioned key elements of
the TBT and Shaw has control over the timing of employee departures
across the Company through an actively managed, orderly transition
over the next 18 months. In select functions, the Company
determined that some employees will transition over a 24-month
period, an extension from the 18-month period initially expected.
Approximately 1,200 employees will be exiting before the end of
fiscal 2018.
In connection with various TBT activities,
including the VDP, Shaw has incurred a restructuring charge of $417
million in the second quarter of fiscal 2018, primarily related to
severance and other employee related costs, as well as additional
costs directly associated with the TBT initiative. While the
restructuring charge has been recognized in the second quarter of
fiscal 2018 results, the actual timing of employee payments related
to the charge will occur over a 24-month period, starting March 29,
2018. The Company does not anticipate full-year TBT restructuring
costs to exceed $450 million.
The anticipated annualized savings, which
include reductions in operating expenses and capital expenditures
(i.e. labour costs that can be identified or associated with a
capital project), related to the VDP, are expected to be
approximately $215 million and will be fully realized in fiscal
2020. Shaw expects these cost reductions to be weighted 60% to
operating expenses, being approximately $130 million, and 40% to
capital expenditures, being approximately $85 million (compared to
the $225 million equally weighted estimate of 50% operating
expenses and 50% capital expenditures initially estimated at the
end of the VDP). VDP related cost reductions in fiscal 2018
are expected to be approximately $48 million, of which
approximately $40 million will be attributed to operating expenses
and $8 million attributed to capital expenditures. See also
“Other Income and Expense Items”, “Caution Concerning Forward
Looking Statements” and “Risks and Uncertainties” for a discussion
of the TBT, the VDP and the risks and assumptions associated
therewith.
Wireless
In our Wireless business, our goal remains
simple - to provide Canadians with sustainable and exceptional
value and choice in their wireless carrier. On the back of our
robust LTE-Advanced network, which is continuously improving, our
‘Big Gig’ data plans and the iPhone 8 and iPhone X experienced
strong demand throughout the quarter.
We have a clear strategy for growing our
Wireless business and our strong second quarter results are yet
another indicator that we are successfully executing on our plan.
During the quarter, which included a busy holiday season and
official launch of the iPhone, we achieved a record quarter with
net postpaid subscriber additions of over 93 thousand. Our Wireless
network is continuously improving and we expect to profitably grow
our market share through pricing and packaging options such as our
Big Gig data plans.
Shaw continues to improve the Wireless
experience for its customers including an expanded distribution
platform through our first agreement with a national
retailer. Launching in April, Loblaws’ ‘The Mobile Shop’ will
sell Freedom Mobile handsets and service plans in approximately 100
of their locations across Canada. In addition, another
significant network milestone has been achieved with the refarm of
10 MHz of AWS-1 spectrum now complete across Freedom Mobile’s
footprint. The Company continues to actively roll out its 2500 and
700 MHz spectrum which further improves the network quality and
will enable additional features such as VoLTE.
In the two years since we acquired our Wireless
business, we have made significant investments and improvements to
our network and our service. We are excited by the tremendous
growth potential of this business, and, as shown by our results
this quarter, we are committed to delivering a strong and
competitive wireless alternative that will benefit all
Canadians.
Wireline
The value of our Internet service is reflected
in outstanding results – strong cumulative net gains in
Internet subscribers over the last seven quarters. Continued
investment in our extensive hybrid co-axial broadband network
enables us to offer WideOpen Internet 150 across 99% of our Western
Canadian cable footprint. We believe Canadians should not
have limitations on how much they use the Internet – by offering
our flagship WideOpen Internet 150 plan with unlimited data, we are
providing customers peace of mind in knowing they can stream,
download and browse without any overage charges for going over
monthly data limits.
In a challenging Consumer Video environment,
including a declining customer base and a general shift into lower
priced video packages, Shaw’s BlueSky TV has helped moderate the
impacts of the evolving cable video market. The launch of Shaw’s
BlueSky TV in mid-2017 provided a new future for our cable video
operations, delivering a new premium television product to
Canadians. Powered by Comcast’s next generation X1 platform,
Shaw BlueSky TV leverages the strength of our network to make this
new television experience possible for our customers.
Integrated with Netflix and featuring benefits like
voice-controlled remote and advanced search, Shaw BlueSky TV has
given customers an elevated video and entertainment experience.
On the shoulders of its Smart suite of products,
Shaw Business continues to grow at a steady pace despite recent
years of economic challenges experienced in parts of Western
Canada. Highlighted by growth in the small and medium-sized
business markets, the Business division continues to consistently
increase its customer base, revenue and profitability. In
December 2017, Shaw Business launched its fourth product under this
portfolio - Smart Surveillance, a cloud-based security camera
system which, when paired with Smart Security, provides the optimum
level of physical security for small businesses.
Selected financial and operational
highlights
Effective September 1, 2017, and as a result of
the restructuring undertaken in fiscal 2017, the Company
reorganized and integrated its management structure, previously
separated in the Consumer and Business Network Services segments,
into a combined Wireline segment, as management and costs became
increasingly inseparable between the previously reported segments.
There was no change to the Wireless operating segment.
Basis of presentation
On August 1, 2017, the Company sold 100% of its
wholly owned subsidiary ViaWest, Inc. (“ViaWest”), previously
reported under the Business Infrastructure Services division, to an
external party.
On May 31, 2017, the Company entered an
agreement to sell a group of assets comprising the operations of
Shaw Tracking, a fleet tracking operation reported within the
Company’s Wireline segment, to an external party. The
transaction closed on September 15, 2017.
Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services division and the Shaw Tracking business (an operating
segment within the Wireline division) are presented as discontinued
operations separate from the Company’s continuing operations. The
Business Infrastructure Services division was comprised primarily
of ViaWest. The remaining operations of the previously reported
Business Infrastructure Services segment and their results are now
included within the Wireline segment. This MD&A reflects the
results of continuing operations, unless otherwise noted.
Financial Highlights
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars except per share amounts) |
2018 |
|
2017 |
|
Change % |
|
2018 |
|
2017 |
|
Change % |
|
Operations: |
|
|
|
|
|
|
|
|
Revenue |
1,355 |
|
1,206 |
|
12.4 |
|
2,604 |
|
2,422 |
|
7.5 |
|
Operating income before restructuring costs and amortization
(1) |
501 |
|
503 |
|
(0.4) |
|
982 |
|
1,007 |
|
(2.5) |
|
Operating margin (1) |
37.0 |
% |
41.7 |
% |
(4.7pts) |
|
37.7 |
% |
41.6 |
% |
(3.9pts) |
|
Net income (loss) from continuing operations |
(164 |
) |
150 |
|
(>100.0) |
|
(44 |
) |
244 |
|
(>100.0) |
|
Income (loss) from discontinued operations, net of tax |
- |
|
(3 |
) |
>100.0 |
|
(6 |
) |
(7 |
) |
14.3 |
|
Net income (loss) |
(164 |
) |
147 |
|
(>100.0) |
|
(50 |
) |
237 |
|
(>100.0) |
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
| Basic
and diluted earnings per share |
|
|
|
|
|
|
|
|
Continuing operations |
(0.33 |
) |
0.31 |
|
|
|
(0.10 |
) |
0.49 |
|
|
|
Discontinued operations |
- |
|
(0.01 |
) |
|
|
(0.01 |
) |
(0.01 |
) |
|
|
|
(0.33 |
) |
0.30 |
|
|
|
(0.11 |
) |
0.48 |
|
|
|
Weighted average participating shares outstanding during period
(millions) |
500 |
|
489 |
|
|
|
499 |
|
488 |
|
|
|
|
|
|
|
|
|
|
|
| Funds
flow from continuing operations (2) |
(26 |
) |
397 |
|
(>100.0) |
|
358 |
|
786 |
|
(54.5) |
|
Free cash flow(1) |
135 |
|
147 |
|
(8.2) |
|
187 |
|
305 |
|
(38.7) |
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.” (2) Funds flow from
operations is before changes in non-cash balances related to
operations as presented in the unaudited interim Consolidated
Statements of Cash Flows.
Subscriber (or revenue
generating unit (“RGU”)) highlights
|
|
|
|
|
Change |
|
Change |
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
February 28, 2018 |
August 31, 2017 |
|
February 28, 2018 |
February 28, 2017 |
|
February 28, 2018 |
February 28, 2017 |
|
Wireline- Consumer |
|
|
|
|
|
|
|
|
|
Video – Cable |
1,635,554 |
1,671,277 |
|
(17,715 |
) |
(7,124 |
) |
|
(35,723 |
) |
(20,270 |
) |
|
Video – Satellite |
748,736 |
773,542 |
|
(4,301 |
) |
(4,611 |
) |
|
(24,806 |
) |
(20,280 |
) |
|
Internet |
1,884,179 |
1,861,009 |
|
5,476 |
|
13,466 |
|
|
23,170 |
|
30,430 |
|
|
Phone |
893,271 |
925,531 |
|
(14,842 |
) |
(7,025 |
) |
|
(32,260 |
) |
(24,870 |
) |
|
Total Consumer |
5,161,740 |
5,231,359 |
|
(31,382 |
) |
(5,294 |
) |
|
(69,619 |
) |
(34,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
Wireline - Business |
|
|
|
|
|
|
|
|
|
Video – Cable |
49,934 |
51,039 |
|
(400 |
) |
(4,480 |
) |
|
(1,105 |
) |
(7,678 |
) |
|
Video – Satellite |
32,353 |
31,535 |
|
1,330 |
|
1,041 |
|
|
818 |
|
1,006 |
|
|
Internet |
170,312 |
170,644 |
|
162 |
|
(3,856 |
) |
|
(332 |
) |
(6,723 |
) |
|
Phone |
337,951 |
327,199 |
|
4,655 |
|
5,692 |
|
|
10,752 |
|
11,056 |
|
|
Total Business |
590,550 |
580,417 |
|
5,747 |
|
(1,603 |
) |
|
10,133 |
|
(2,339 |
) |
|
Total Wireline |
5,752,290 |
5,811,776 |
|
(25,635 |
) |
(6,897 |
) |
|
(59,486 |
) |
(37,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
|
|
|
|
|
|
|
|
Postpaid |
890,649 |
764,091 |
|
93,508 |
|
33,582 |
|
|
126,558 |
|
47,889 |
|
|
Prepaid |
380,536 |
383,082 |
|
(3,806 |
) |
(155 |
) |
|
(2,546 |
) |
(4,992 |
) |
|
Total Wireless |
1,271,185 |
1,147,173 |
|
89,702 |
|
33,427 |
|
|
124,012 |
|
42,897 |
|
|
Total Subscribers |
7,023,475 |
6,958,949 |
|
64,067 |
|
26,530 |
|
|
64,526 |
|
5,568 |
|
Wireline RGUs declined by 25,635 in the quarter
compared to a loss of 6,897 RGUs in the second quarter of 2017.
Internet net gains of approximately 5,500 RGUs in the current
quarter were more than offset by Video, Phone and Satellite RGU
losses. The Company continued its moderated promotions strategy,
focused on higher value Internet and Video subscribers.
In Wireless, the Company continued to add
wireless subscribers, gaining a net combined 89,702 postpaid and
prepaid subscribers in the quarter. This represents an
increase of more than 2.5 times the 33,427 net additions achieved
in the second quarter of fiscal 2017. The increase in the customer
base reflects customer demand for the iPhone, data-centric service
plans and the ongoing execution of our Wireless growth strategy to
improve the network and customer experience.
Overview
For detailed discussion of divisional
performance see “Discussion of operations.” Highlights of the
consolidated second quarter financial results are as
follows:
Revenue
Revenue for the second quarter
of fiscal 2018 of $1.36 billion increased $149 million or 12.4%
from $1.21 billion for the second quarter of fiscal 2017,
highlighted by the following:
- The year-over-year improvement in revenue was primarily due to
growth in the Wireless division, contributing an incremental $149
million in revenue driven by higher postpaid RGUs (approximately
175,000 since February 28, 2017), an improvement to average revenue
per unit (“ARPU”) and a large share of postpaid subscriber adds
purchasing handsets, resulting in a $124 million increase in
equipment revenue up from $24 million in the second quarter of
fiscal 2017 to $148 million in the current quarter.
- The Business division contributed $7 million or 5.3% to the
consolidated revenue improvements for the quarter driven primarily
by customer growth.
- Consumer division revenue for the period decreased $7 million
or 0.8% compared to the second quarter of fiscal 2017, mainly due
to lower cable Video revenue driven by RGU losses and lower ARPU
due to a change in Video customer mix. Cable Video revenue
declines were partially offset by higher Internet revenues driven
mostly by the addition of approximately 66,000 Internet RGUs since
February 28, 2017 and rate increases introduced in each the fourth
quarter of fiscal 2017 and the second quarter of fiscal
2018.
Compared to the first quarter
of fiscal 2018, consolidated revenue for the quarter increased 8.5%
or by $106 million. The increase in revenue over the prior
quarter relates primarily to subscriber growth and handset sales in
the Wireless division.
Revenue for the six-month
period of $2.60 billion increased $182 million or 0.8%
from $2.42 billion for the comparable period in fiscal 2017.
- The year-over-year improvement in revenue was primarily due to
the Wireless division contributing revenues of $465 million, an
increase of $186 million or 66.7% compared to the comparable
six-month period of fiscal 2017.
- The Business division contributed $16 million or 6.1% to the
consolidated revenue improvements for the six-month period driven
primarily by customer growth.
- Consumer division revenues decreased $19 million or 1.0%
compared to the comparable six-month period of fiscal 2017.
Operating income before restructuring
costs and amortization
Operating income before restructuring costs and
amortization for the second quarter of fiscal 2018
of $501 million decreased by $2 million or 0.4% from $503 million
for the second quarter of fiscal 2017, highlighted by the
following:
- The year-over-year improvement in the Wireless division of $7
million was more than fully offset by the $9 million or 1.9%
decrease in the Wireline division. The decline in the Wireline
division related primarily to the change in Video customer mix,
coupled with higher programming costs.
Operating margin for the second
quarter of 37.0% was down from 41.7% in the second quarter
of fiscal 2017 due primarily to the impact of the lower Wireless
operating margin of 12.4% as a result of the additional equipment
sales in the quarter and the lower resulting upfront margin
achieved on loading these RGUs.
Compared to the first quarter of fiscal
2018, operating income before restructuring costs and
amortization for the current quarter was up $20 million related
primarily to lower corporate related costs.
For the six-month period,
operating income before restructuring costs and amortization of
$982 million decreased $25 million or 2.5% from $1.0 billion for
the comparable period.
- Wireless operating income before restructuring costs and
amortization for the six-month period increased $12 million or
20.3% over the comparable period fully offset by a decrease in the
Wireline division of $37 million related primarily to the change in
Video customer mix, coupled with higher programming costs.
Free cash flow
Free cash flow for the second
quarter of fiscal 2018 of $135 million decreased $12
million from $147 million in the second quarter of fiscal 2017,
mainly due to $19 million of higher planned capital expenditures.
Net income (loss)
Net loss of $164 million and $50 million for the
three and six months ended February 28, 2018, respectively compared
to net income of $147 million and $237 million for the same periods
in fiscal 2017. The changes in net income are outlined in the
following table.
|
|
February 28, 2018 net income compared
to: |
|
|
Three months ended |
|
Six months ended |
|
(millions of Canadian dollars) |
November 30, 2017 |
February 28, 2017 |
|
February 28, 2017 |
|
Increased (decreased) operating income before restructuring costs
and amortization (1) |
20 |
|
(2 |
) |
|
(25 |
) |
|
Decreased (increased) restructuring costs |
(417 |
) |
(417 |
) |
|
(405 |
) |
|
Decreased (increased) amortization |
5 |
|
(19 |
) |
|
(51 |
) |
|
Change in net other costs and revenue (2) |
(22 |
) |
15 |
|
|
133 |
|
|
Decreased (increased) income taxes |
130 |
|
109 |
|
|
60 |
|
|
Increased income from discontinued operations, net of tax |
6 |
|
3 |
|
|
1 |
|
|
|
(278 |
) |
(311 |
) |
|
(287 |
) |
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”(2) Net other costs
include business acquisition costs, accretion of long-term
liabilities and provisions, debt retirement costs, realized and
unrealized foreign exchange differences and other losses as
detailed in the unaudited Consolidated Statements of Income.
Restructuring costs in the second
quarter of fiscal 2018 of $417 million related to the TBT
initiative. The costs relate mainly to severance and other employee
costs attributable to the group of eligible employees who accepted
the VDP package during the period, as well as other costs directly
associated with the TBT initiative. See also “Introduction”, “Other
Income and Expense Items”, “Caution Forward Looking Statements”,
and “Risk and Uncertainty” in this MD&A for additional
discussion of the TBT, the VDP and the risks and assumptions
associated therewith.
Outlook
The Company confirms that it remains on track to
meet its fiscal 2018 guidance which includes consolidated operating
income before restructuring costs and amortization growing to
approximately $2.1 billion – an increase of approximately 5% over
fiscal 2017; capital investments of approximately $1.38 billion;
and free cash flow of approximately $375 million. Shaw’s
guidance confirmation includes assumptions related to cost
reductions that will be achieved through the TBT initiative
(specifically the VDP); roaming cost reductions of approximately
$12 million expected to be realized in the third quarter of fiscal
2018 associated with the CRTC finalizing wholesale mobile wireless
roaming rates; and short-term incremental costs associated with
growth in Wireless handset sales.
See “Caution concerning forward-looking
statements.”
Non-IFRS and additional GAAP
measures
The Company’s continuous disclosure documents
may provide discussion and analysis of non-IFRS financial measures.
These financial measures do not have standard definitions
prescribed by IFRS and therefore may not be comparable to similar
measures disclosed by other companies. The Company’s continuous
disclosure documents may also provide discussion and analysis of
additional GAAP measures. Additional GAAP measures include line
items, headings, and sub-totals included in the financial
statements.
The Company utilizes these measures in making
operating decisions and assessing its performance. Certain
investors, analysts and others utilize these measures in assessing
the Company’s operational and financial performance and as an
indicator of its ability to service debt and return cash to
shareholders. The non-IFRS financial measures and additional GAAP
measures have not been presented as an alternative to net income or
any other measure of performance required by IFRS.
Below is a discussion of the non-IFRS financial
measures and additional GAAP measures used by the Company and
provides a reconciliation to the nearest IFRS measure or provides a
reference to such reconciliation.
Operating income before restructuring
costs and amortization
Operating income before restructuring costs and
amortization is calculated as revenue less operating, general and
administrative expenses. It is intended to indicate the Company’s
ongoing ability to service and/or incur debt and is therefore
calculated before one-time items such as restructuring costs,
amortization (a non-cash expense) and interest. Operating income
before restructuring costs and amortization is also one of the
measures used by the investing community to value the business.
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Operating income from continuing operations |
(167 |
) |
270 |
|
|
58 |
|
538 |
|
|
Add back (deduct): |
|
|
|
|
|
|
Restructuring costs |
417 |
|
- |
|
|
417 |
|
12 |
|
|
Amortization: |
|
|
|
|
|
|
Deferred equipment revenue |
(8 |
) |
(10 |
) |
|
(17 |
) |
(20 |
) |
|
Deferred equipment costs |
28 |
|
30 |
|
|
58 |
|
61 |
|
|
Property, plant and equipment, intangibles and other |
231 |
|
213 |
|
|
466 |
|
416 |
|
|
Operating income before restructuring costs and
amortization |
501 |
|
503 |
|
|
982 |
|
1,007 |
|
Operating margin
Operating margin is calculated by dividing
operating income before restructuring costs and amortization by
revenue.
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
|
2017 |
|
Change % |
|
2018 |
|
2017 |
|
Change % |
|
|
|
|
|
|
|
|
|
|
Wireline |
43.6 |
% |
44.5 |
% |
(0.9pts) |
|
42.6 |
% |
44.2 |
% |
(1.6pts) |
|
Wireless |
12.4 |
% |
20.6 |
% |
(8.2pts) |
|
15.3 |
% |
21.2 |
% |
(5.9pts) |
|
Combined Wireline and Wireless |
37.0 |
% |
41.7 |
% |
(4.7pts) |
|
37.7 |
% |
41.6 |
% |
(3.9pts) |
Income from discontinued operations
before restructuring costs, amortization, taxes and other
non-operating items
Income from discontinued operations before
restructuring costs, amortization, taxes and other non-operating
items is calculated as revenue less operating, general and
administrative expenses from discontinued operations. This
measure is used in the determination of free cash flow.
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
2017 |
|
|
2018 |
|
2017 |
|
|
Income (loss) from discontinued operations, net of
tax |
- |
(3 |
) |
|
(6 |
) |
(7 |
) |
|
Add back (deduct): |
|
|
|
|
|
|
Gain (loss) on divestiture, net of tax |
- |
- |
|
|
(6 |
) |
- |
|
|
Income taxes |
- |
- |
|
|
- |
|
(3 |
) |
|
Interest on long-term debt |
- |
9 |
|
|
- |
|
18 |
|
|
Amortization of property, plant and equipment, intangibles and
other |
- |
32 |
|
|
- |
|
64 |
|
| Income from discontinued operations before
restructuring costs, amortization, taxes and
other non-operating items - |
38 |
|
|
- |
|
72 |
|
Free cash flow
The Company utilizes this measure to assess the
Company’s ability to repay debt and pay dividends to shareholders.
Free cash flow is calculated as free cash flow from continuing
operations and free cash flow from discontinued operations.
Free cash flow from continuing
operations is comprised of operating income before
restructuring costs and amortization, adding dividends from equity
accounted associates, changes in receivable related balances with
respect to customer equipment financing transactions as a cash item
and deducting capital expenditures (on an accrual basis and net of
proceeds on capital dispositions) and equipment costs (net),
interest, cash taxes paid or payable, dividends paid on the
preferred shares, recurring cash funding of pension amounts net of
pension expense and adjusted to exclude share-based compensation
expense.
Free cash flow from continuing operations has
not been reported on a segmented basis. Certain components of free
cash flow from continuing operations, including operating income
before restructuring costs and amortization continue to be reported
on a segmented basis. Capital expenditures and equipment costs
(net) are also reported on a segmented basis. Other items,
including interest and cash taxes, are not generally directly
attributable to a segment, and are reported on a consolidated
basis.
Free cash flow from discontinued
operations is comprised of income from discontinued
operations before restructuring costs, amortization, taxes and
other non-operating items after deducting capital expenditures (on
an accrual basis and net of proceeds on capital dispositions),
interest and cash taxes paid or payable that are included in the
income from discontinued operations before restructuring costs,
amortization, taxes and other non-operating items.
Free cash flow is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change % |
|
|
2018 |
|
2017 |
|
Change % |
|
|
Revenue |
|
|
|
|
|
|
|
|
Consumer |
926 |
|
933 |
|
(0.8 |
) |
|
1,861 |
|
1,880 |
|
(1.0 |
) |
|
Business |
140 |
|
133 |
|
5.3 |
|
|
280 |
|
264 |
|
6.1 |
|
|
Wireline |
1,066 |
|
1,066 |
|
- |
|
|
2,141 |
|
2,144 |
|
(0.1 |
) |
|
Service |
142 |
|
117 |
|
21.4 |
|
|
273 |
|
234 |
|
16.7 |
|
|
Equipment |
148 |
|
24 |
|
>100.0 |
|
|
192 |
|
45 |
|
>100.0 |
|
|
Wireless |
290 |
|
141 |
|
>100.0 |
|
|
465 |
|
279 |
|
66.7 |
|
|
|
1,356 |
|
1,207 |
|
12.4 |
|
|
2,606 |
|
2,423 |
|
7.6 |
|
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
- |
|
|
(2 |
) |
(1 |
) |
100.0 |
|
|
|
1,355 |
|
1,206 |
|
12.4 |
|
|
2,604 |
|
2,422 |
|
7.5 |
|
| Operating income before restructuring costs and
amortization (1) |
|
|
|
|
|
|
Wireline |
465 |
|
474 |
|
(1.9 |
) |
|
911 |
|
948 |
|
(3.9 |
) |
|
Wireless |
36 |
|
29 |
|
24.1 |
|
|
71 |
|
59 |
|
20.3 |
|
|
|
501 |
|
503 |
|
(0.4 |
) |
|
982 |
|
1,007 |
|
(2.5 |
) |
| Capital expenditures and equipment costs
(net):(2) |
|
|
|
|
|
|
|
Wireline |
232 |
|
216 |
|
7.4 |
|
|
468 |
|
420 |
|
11.4 |
|
|
Wireless |
56 |
|
53 |
|
5.7 |
|
|
173 |
|
118 |
|
46.6 |
|
|
|
288 |
|
269 |
|
7.1 |
|
|
641 |
|
538 |
|
19.2 |
|
|
Free cash flow before the following |
213 |
|
234 |
|
(9.0 |
) |
|
341 |
|
469 |
|
(27.3 |
) |
|
Less: |
|
|
|
|
|
|
|
|
Interest |
(63 |
) |
(68 |
) |
(7.4 |
) |
|
(123 |
) |
(134 |
) |
(8.2 |
) |
|
Cash taxes |
(43 |
) |
(40 |
) |
7.5 |
|
|
(87 |
) |
(81 |
) |
7.4 |
|
|
Other adjustments: |
|
|
|
|
|
|
|
|
Dividends from equity accounted associates |
23 |
|
22 |
|
4.6 |
|
|
46 |
|
43 |
|
7.0 |
|
|
Non-cash share-based compensation |
1 |
|
1 |
|
- |
|
|
2 |
|
2 |
|
- |
|
|
Pension adjustment |
4 |
|
1 |
|
>100.0 |
|
|
8 |
|
4 |
|
100.0 |
|
|
Customer equipment financing |
2 |
|
1 |
|
100.0 |
|
|
4 |
|
4 |
|
- |
|
|
Preferred share dividends |
(2 |
) |
(2 |
) |
- |
|
|
(4 |
) |
(4 |
) |
- |
|
| Free cash flow from continuing operations
135 |
149 |
|
(9.4 |
) |
|
187 |
|
303 |
|
(38.3 |
) |
|
Income from discontinued operations before
restructuring costs, amortization taxes and
other non-operating items |
- |
|
38 |
|
(100.0 |
) |
|
- |
|
72 |
|
(100.0 |
) |
|
Less: |
|
|
|
|
|
|
|
|
Capital expenditures |
- |
|
(29 |
) |
(100.0 |
) |
|
- |
|
(49 |
) |
(100.0 |
) |
|
Interest |
- |
|
(9 |
) |
(100.0 |
) |
|
- |
|
(18 |
) |
(100.0 |
) |
|
Cash taxes |
- |
|
(2 |
) |
(100.0 |
) |
|
- |
|
(3 |
) |
(100.0 |
) |
| Free cash flow from discontinued
operations - |
(2 |
) |
(100.0 |
) |
|
- |
|
2 |
|
(100.0 |
) |
|
Free cash flow |
135 |
|
147 |
|
(8.2 |
) |
|
187 |
|
305 |
|
(38.7 |
) |
|
|
|
|
|
|
|
|
|
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”(2) Per Note 4 to the
unaudited interim Consolidated Financial Statements.
Net debt leverage ratio
The Company uses this ratio to determine its
optimal leverage ratio. Refer to “Liquidity and capital resources”
for further detail.
Discussion of operations
Wireline
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change % |
|
|
2018 |
|
2017 |
|
Change % |
|
|
Consumer |
926 |
|
933 |
|
(0.8 |
) |
|
1,861 |
|
1,880 |
|
(1.0 |
) |
|
Business |
140 |
|
133 |
|
5.3 |
|
|
280 |
|
264 |
|
6.1 |
|
|
Wireline revenue |
1,066 |
|
1,066 |
|
- |
|
|
2,141 |
|
2,144 |
|
(0.1 |
) |
|
Operating income before restructuring costs and amortization
(1) |
465 |
|
474 |
|
(1.9 |
) |
|
911 |
|
948 |
|
(3.9 |
) |
|
Operating margin (1) |
43.6 |
% |
44.5 |
% |
(0.9pts) |
|
|
42.6 |
% |
44.2 |
% |
(1.6pts) |
|
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”
In the second quarter of fiscal
2018, Wireline RGUs decreased by 25,635 compared to a 6,897 RGU
loss in the second quarter of fiscal 2017. RGU disconnects
were driven primarily by the Company’s continued moderated
promotions strategy, focused on higher value internet and Video
subscribers.
Revenue highlights include:
- Consumer revenue for the second quarter of
fiscal 2018 decreased by $7 million or 0.8% compared to the second
quarter of fiscal 2017. Higher revenue generated by January
Internet rate adjustments and incremental Internet RGUs were fully
offset by the impact of reductions to cable Video, Phone and
Satellite video RGUs, as well as customer downward migration in
video packages relative to a year ago.
- As compared to the first quarter of fiscal
2018, the current quarter revenue decreased by $9 million or
1.0%.
- Business revenue of $140 million for the second
quarter of fiscal 2018 was up $7 million or 5.3%
over the second quarter of fiscal 2017. Growth was led by the
continued success of selling the Smart suite of products,
specifically Smart WiFi and Smart Voice, as well as traditional
Internet, Video and data services.
- As compared to the first quarter of fiscal
2018, the current quarter revenue was flat at $140
million.
Operating income before restructuring costs and
amortization highlights include:
- Operating income before restructuring costs and amortization
for the second quarter of fiscal 2018 of $465
million was down 1.9% or $9 million from $474 million in the second
quarter of fiscal 2017. The decline related primarily to
customer downward migration in video packages coupled with higher
programming costs.
- As compared to the first quarter of fiscal
2018, Wireline operating income before restructuring costs and
amortization for the current quarter increased by $19
million.
Wireless
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change % |
|
2018 |
|
2017 |
|
Change % |
|
Service |
142 |
|
117 |
|
21.4 |
|
273 |
|
234 |
|
16.7 |
|
Equipment and other |
148 |
|
24 |
|
>100.0 |
|
192 |
|
45 |
|
>100.0 |
|
Wireless revenue |
290 |
|
141 |
|
>100.0 |
|
465 |
|
279 |
|
66.7 |
|
Operating income before restructuring costs and amortization
(1) |
36 |
|
29 |
|
24.1 |
|
71 |
|
59 |
|
20.3 |
|
Operating margin (1) |
12.4 |
% |
20.6 |
% |
(8.2pts) |
|
15.3 |
% |
21.2 |
% |
(5.9pts) |
(1) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”
The Wireless division added 89,702 RGUs in the
second quarter of fiscal 2018 as compared to
33,427 RGUs gained in the second quarter of fiscal 2017. The
increase in the customer base reflects customer demand for the
iPhone, data-centric service plans and the ongoing execution of our
Wireless growth strategy to improve the network and customer
experience.
Revenue highlights include:
- Revenue of $290 million for the second quarter
of fiscal 2018 was up $149 million or 105.7% over the second
quarter of fiscal 2017. The increase in revenue was driven
primarily by year-over-year growth in both handset and service
revenue. Service revenue grew as a result of increased
postpaid and prepaid RGUs, and improved ARPU of $38.43 as compared
to $36.44 in the second quarter of fiscal 2017.
- As compared to the first quarter of fiscal
2018, the current quarter revenue increased $115 million or 65.7%
and ARPU increased by $0.91 or 2.4%.
Operating income before restructuring costs and
amortization highlights include:
- Operating income before restructuring costs and amortization of
$36 million for the second quarter of fiscal 2018
improved by $7 million or 24.1% over the second quarter of fiscal
2017. The improvements were driven primarily by increased
revenue offset partially by an increase in distribution and handset
costs associated with the increased loading of new customers in the
quarter.
- As compared to the first quarter of fiscal
2018, operating income before restructuring costs and amortization
for the current quarter increased $1 million or
2.9%.
Capital expenditures and equipment
costs
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
2017 |
Change % |
|
|
2018 |
2017 |
Change % |
|
|
|
Wireline |
|
|
|
|
|
|
|
|
|
New housing development |
29 |
25 |
16.0 |
|
|
58 |
47 |
23.4 |
|
|
|
Success based |
70 |
60 |
16.7 |
|
|
163 |
141 |
15.6 |
|
|
|
Upgrades and enhancements |
104 |
103 |
1.0 |
|
|
197 |
174 |
13.2 |
|
|
|
Replacement |
6 |
7 |
(14.3 |
) |
|
13 |
13 |
- |
|
|
|
Building and other |
23 |
21 |
9.5 |
|
|
37 |
45 |
(17.8 |
) |
|
|
Total as per Note 4 to the unaudited interim consolidated financial
statements |
232 |
216 |
7.4 |
|
|
468 |
420 |
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
|
|
|
|
|
|
|
|
Total as per Note 4 to the unaudited interim consolidated
financial statements |
56 |
53 |
5.7 |
|
|
173 |
118 |
46.6 |
|
|
|
Consolidated total as per Note 4 to the unaudited interim
consolidated financial statements |
288 |
269 |
7.1 |
|
|
641 |
538 |
19.2 |
|
|
In the second quarter of fiscal
2018, capital investment from continuing operations was $288
million, a $19 million or 7% increase over the comparable period in
fiscal 2017, driven by added capital expenditures of $10 million in
success-based equipment, $3 million in the Wireless division, $4
million in growth and upgrades related to residential and business
customers and $1 million in Wireline network infrastructure and
broadband capacity expansion.
Wireline highlights include:
- Success based capital for the quarter of $70 million was $10
million higher than in the second quarter of fiscal 2017. The
increase was driven by Video equipment costs from BlueSky TV
activations.
- Investment in new housing development was $29 million, a $4
million or 16% increase over the comparable period, driven by
residential and commercial customer network growth and
acquisition.
Wireless highlights include:
- Capital investment of $56 million in the second quarter was
related primarily to continued investment in our network
infrastructure and refarming of AWS-1 spectrum, specifically the
LTE-Advanced network rollout project as well as back office system
upgrades.
Discontinued operations
Shaw Tracking
On May 31, 2017, the Company entered an
agreement to sell a group of assets comprising the operations of
Shaw Tracking, a fleet tracking operation reported within the
Company’s Business Network Services segment. The Company
determined that the assets and liabilities of the Shaw Tracking
business met the criteria to be classified as a disposal group held
for sale. Accordingly, the assets and liabilities of the Shaw
Tracking business were classified in the consolidated statement of
financial position at August 31, 2017 as current assets held for
sale or current liabilities held for sale, respectively, as the
sale of these assets and liabilities was expected to be completed
within one year. In addition, the operating results and
operating cash flows of the business are presented as discontinued
operations separate from the Company’s continuing operations. The
transaction closed on September 15, 2017.
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
2017 |
|
|
2018 |
|
2017 |
|
|
Revenue |
- |
8 |
|
|
1 |
|
16 |
|
|
|
|
|
|
|
|
|
Operating, general and administrative
expenses |
|
|
|
|
|
|
Employee salaries and benefits |
- |
2 |
|
|
- |
|
4 |
|
|
Purchases of goods and services |
- |
4 |
|
|
1 |
|
8 |
|
|
|
- |
6 |
|
|
1 |
|
12 |
|
|
Amortization |
- |
(1 |
) |
|
- |
|
(1 |
) |
|
Income from discontinued operations before
tax |
- |
3 |
|
|
- |
|
5 |
|
|
Income taxes |
- |
1 |
|
|
- |
|
1 |
|
|
Income from discontinued operations, net of tax,
before divestiture |
- |
2 |
|
|
- |
|
4 |
|
|
Loss on divestiture, net of tax |
- |
- |
|
|
(6 |
) |
- |
|
|
Income (loss) from discontinued operations, net of
tax |
- |
2 |
|
|
(6 |
) |
4 |
|
ViaWest, Inc.
In the fourth quarter of fiscal 2017, the
Company entered into an agreement to sell 100% of its wholly owned
subsidiary ViaWest, Inc. (“ViaWest”) for proceeds of approximately
USD $1.68 billion. Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services segment relating to ViaWest are presented as discontinued
operations separate from the Company’s continuing operations. The
remaining operations of the previously reported Business
Infrastructure Services segment and their results are now included
within the Wireline segment.
|
|
Three months ended February 28, |
|
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
2017 |
|
|
2018 |
2017 |
|
|
Revenue |
- |
91 |
|
|
- |
180 |
|
|
Eliminations(1) |
- |
(1 |
) |
|
- |
(1 |
) |
|
|
- |
90 |
|
|
- |
179 |
|
|
|
|
|
|
|
|
|
Operating, general and administrative
expenses |
|
|
|
|
|
|
Employee salaries and benefits |
- |
22 |
|
|
- |
44 |
|
|
Purchases of goods and services |
- |
33 |
|
|
- |
68 |
|
|
|
- |
55 |
|
|
- |
112 |
|
|
Eliminations(1) |
- |
(1 |
) |
|
- |
(1 |
) |
|
|
- |
36 |
|
|
- |
68 |
|
|
Amortization |
- |
32 |
|
|
- |
64 |
|
| Interest
on long-term debt |
- |
9 |
|
|
- |
18 |
|
|
Amortization of transaction costs |
- |
1 |
|
|
- |
1 |
|
|
Loss from discontinued operations before tax |
- |
(6 |
) |
|
- |
(15 |
) |
| Income
taxes |
- |
(1 |
) |
|
- |
(4 |
) |
|
Loss from discontinued operations, net of tax |
- |
(5 |
) |
|
- |
(11 |
) |
(1) Eliminations relate to intercompany
transactions between continuing and discontinued operations. The
costs are included in continuing operations as they continue to be
incurred subsequent to the disposition.
Supplementary quarterly financial
information
|
Quarter |
Revenue |
Operating income before restructuring costs and
amortization (1) |
Net income (loss) from continuing operations
attributable to equity shareholders |
Net income (loss) attributable to equity
shareholders |
Net income (loss) (2) |
Basic and Diluted earnings (loss) per share
from continuing operations |
Basic and Diluted earnings (loss) per
share |
| (millions of Canadian dollars except per share
amounts) |
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
Second |
1,355 |
501 |
(164 |
) |
(164 |
) |
(164 |
) |
(0.33 |
) |
(0.33 |
) |
|
First |
1,249 |
481 |
120 |
|
114 |
|
114 |
|
0.23 |
|
0.22 |
|
|
2017 |
|
|
|
|
|
|
|
|
Fourth |
1,244 |
479 |
149 |
|
481 |
|
481 |
|
0.30 |
|
0.97 |
|
|
Third |
1,216 |
511 |
164 |
|
133 |
|
133 |
|
0.33 |
|
0.27 |
|
|
Second |
1,206 |
503 |
150 |
|
147 |
|
147 |
|
0.30 |
|
0.30 |
|
|
First |
1,216 |
504 |
93 |
|
89 |
|
89 |
|
0.19 |
|
0.18 |
|
|
2016 |
|
|
|
|
|
|
|
|
Fourth |
1,212 |
514 |
145 |
|
154 |
|
154 |
|
0.29 |
|
0.31 |
|
|
Third |
1,189 |
519 |
78 |
|
700 |
|
704 |
|
0.15 |
|
1.45 |
|
|
|
|
|
|
|
|
|
|
(1) See definition and discussion under
“Non-IFRS and additional GAAP measures.”(2) Net income
attributable to both equity shareholders and non-controlling
interests
In the second quarter of fiscal 2018, net income
decreased $278 million compared to the first quarter of fiscal 2018
mainly due to $417 million of restructuring costs recorded during
the quarter related to the Company’s TBT initiative and composed
primarily of the costs associated with the VDP. See “Other income
and expense items” for further details on non-operating items.
In the first quarter of fiscal 2018, net income
decreased $367 million compared to the fourth quarter of fiscal
2017 mainly due to the $330 million gain on divestiture, net of
tax, of ViaWest, as well as an $11 million non-operating provision
recovery in the prior quarter.
In the fourth quarter of fiscal 2017, net income
increased $348 million compared to the third quarter of fiscal 2017
mainly due to the gain on divestiture, net of tax, of ViaWest, and
lower current quarter restructuring costs. The increase was
partially offset by a decrease in operating income before
restructuring costs and amortization, higher amortization, lower
equity income from our investment in Corus and higher income taxes.
Net other costs and revenue changed primarily due to a $14 million
decrease in income from an equity accounted associate and an $11
million provision reversal related to the wind down of shomi in the
quarter.
In the third quarter of fiscal 2017, net income
decreased $14 million compared to the second quarter of fiscal 2017
mainly due to current quarter restructuring costs and losses on
discontinued operations, net of tax, as well as increased
amortization. The decrease was partially offset by an increase in
operating income before restructuring costs and amortization and
lower income taxes. Net other costs and revenue changed
primarily due to a $16 million increase in income from an equity
accounted associate and a $15 million provision reversal related to
the wind down of shomi in the quarter.
In the second quarter of fiscal 2017, net income
increased $58 million compared to the first quarter of fiscal 2017
mainly due to a non-recurring provision related to the wind down of
shomi operations recorded in the first quarter, partially offset by
an increase in amortization and income taxes. Also contributing to
the increased net income were lower restructuring costs, partially
offset by lower equity income from our investment in
Corus. Net other costs and revenue changed primarily
due to a provision of $107 million recorded in the prior quarter
relating to shomi operations partially offset by a $17 million
decrease in income from an equity accounted associate in the
quarter.
In the first quarter of fiscal 2017, net income
decreased $65 million compared to the fourth quarter of fiscal 2016
mainly due to a non-recurring provision related to the wind down of
shomi operations included in net other costs and revenue for the
current quarter. Also contributing to the decreased net income was
lower operating income before restructuring costs and amortization,
higher restructuring charges and lower income from discontinued
operations, partially offset by lower income taxes. Net other costs
and revenue changed primarily due to a $107 million impairment of
the Company’s joint venture investment in shomi and a $27 million
increase in income from an equity accounted associate in the
quarter.
In the fourth quarter of fiscal 2016 net income
decreased $550 million compared to the third quarter of fiscal 2016
mainly due to lower income from discontinued operations, net of
tax, relating primarily to the gain on the divestiture of the
former Media division recorded in the third quarter, decreased
operating income before restructuring costs and amortization, and
higher income taxes. Partly offsetting the decrease in net income
were decreases in net other costs and revenue and restructuring
costs. Net other costs and revenue changed primarily due to
non-recurring charges recorded in the third quarter, including a
$54 million impairment of the Company’s joint venture investment in
shomi, a $20 million write-down of a private portfolio investment,
$12 million in acquisition related costs and a $10 million loss
from an equity accounted associate.
Net income for the third quarter of fiscal 2016
increased $540 million compared to the second quarter of fiscal
2016 mainly due to higher income from discontinued operations, net
of tax, relating primarily to the gain on the divestiture of the
former Media division, increased operating income before
restructuring costs and amortization and lower income taxes.
Partly offsetting the net income improvement in the quarter were:
i) decreased net other costs and revenue; ii) increased
restructuring charges; and iii) increased amortization. Net
other costs and revenue changed primarily due to a $54 million
impairment of the Company’s shomi joint venture investment, a $20
million write-down of a private portfolio investment and a $10
million loss from an equity accounted associate.
Other income and expense
items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. For the three- and six-month periods ended
February 28, 2018 the category included a $417 million
restructuring charge related to the Company’s TBT initiative.
As a first step in the TBT, the VDP was offered to eligible
employees. The outcome of the program had approximately 3,300 Shaw
employees accepting the VDP package, representing approximately 25%
of all employees. The costs related to this program make up the
majority of the restructuring costs recorded in the period. See
“Introduction” for further details on the TBT and the VDP.
Amortization
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change % |
|
|
2018 |
|
2017 |
|
Change % |
|
|
Amortization revenue (expense) |
|
|
|
|
|
|
|
|
Deferred equipment revenue |
8 |
|
10 |
|
(20.0 |
) |
|
17 |
|
20 |
|
(15.0 |
) |
|
Deferred equipment costs |
(28 |
) |
(30 |
) |
(6.7 |
) |
|
(58 |
) |
(61 |
) |
(4.9 |
) |
|
Property, plant and equipment, intangibles and other |
(231 |
) |
(213 |
) |
8.5 |
|
|
(466 |
) |
(416 |
) |
12.0 |
|
Amortization of property, plant and equipment,
intangibles and other increased 8.5% and 12.0% for the three and
six months ended February 28, 2018 over the comparable periods due
to amortization of new expenditures exceeding the amortization of
assets that became fully amortized during the period.
Amortization of financing costs and
Interest expense
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
2017 |
Change % |
|
|
2018 |
2017 |
Change % |
|
|
Amortization of financing costs – long-term debt |
1 |
- |
100.0 |
|
|
2 |
1 |
100.0 |
|
|
Interest expense |
63 |
69 |
(8.7 |
) |
|
124 |
135 |
(8.2 |
) |
Interest expense for the three and six-month
periods ended February 28, 2018 was lower than the comparable
periods due to lower average outstanding debt balances in the
current year. (See note 9 of the unaudited interim consolidated
financial statements for further detail.)
Equity income (loss) of an associate or
joint venture
For the three and six-month periods ended
February 28, 2018 the Company recorded equity income of $16 million
and $46 million, respectively, related to its interest in Corus,
compared to equity income of $9 million and $36 million for the
comparable periods.
Other gains/losses
This category generally includes realized and
unrealized foreign exchange gains and losses on U.S. dollar
denominated current assets and liabilities, gains and losses on
disposal of property, plant and equipment and minor investments,
and the Company’s share of the operations of Burrard Landing Lot 2
Holdings Partnership. For the prior year six-month period
ended February 28, 2017, the category included a $107 million
provision in respect of the Company’s investment in shomi, which
discontinued operations in fiscal 2017.
Income taxes
Income taxes are lower in the quarter compared
to the second quarter of fiscal 2017 mainly due to a net loss from
continuing operations driven mainly by $417 million restructuring
costs incurred in the quarter. See “Introduction” for further
details on the TBT and the VDP.
Financial position
Total assets were $14.3 billion at February 28,
2018 compared to $14.4 billion at August 31, 2017. The following is
a discussion of significant changes in the consolidated statement
of financial position since August 31, 2017.
Current assets decreased $223 million due to
decreases in cash of $229 million, accounts receivable of $32
million, and assets held for sale of $61 million partially offset
by increases in inventories of $24 million and other current assets
of $75 million. Cash decreased as the funds provided by operations
were exceeded by cash outlays for investing and financing
activities. Accounts receivable decreased primarily due to the
receipt of a commodity tax refund relating to the purchase of
spectrum licenses made by Freedom Mobile in fiscal 2017.
Assets held for sale as at August 31, 2017 included the assets of
the Shaw Tracking business, which was sold on September 15,
2017.
Other current assets increased over the period
mainly due to a significant increase in Wireless subscribers
participating in both the Company’s MyTab plan, a discretionary
wireless handset discount plan and MyTab Boost, a plan that allows
our customers to pay less for their handset upfront if they pay a
predetermined incremental charge on a monthly basis. The
significant growth in handset sales was primarily related to the
introduction of the iPhone to the Company’s handset lineup.
Investments and other assets increased by $10
million primarily due to equity income and other comprehensive
income of associates related to the Company’s investment in Corus.
Property, plant and equipment increased $132 million due to capital
investments in excess of amortization.
Current liabilities increased $31 million during
the period due to an increase in provisions of $207 million,
partially offset by decreases in accounts payable and accrued
liabilities of $58 million, income taxes payable of $76 million,
and liabilities held for sale of $39 million. The increase in
current provisions was mainly due to the restructuring costs
related to TBT. In connection with the VDP, the Company recorded
$417 million restructuring charge primarily related to severance
and other related costs, of which $203 million is included in
current provisions and $198 million is included in long-term
provisions. Income taxes payable decreased due to normal course tax
installment payments, partially offset by the current period
provision. Accounts payable and accruals decreased due to the
timing of payment and fluctuations in various payables including
capital expenditures and network fees. Liabilities held for sale as
at August 31, 2017 included the liabilities of the Shaw Tracking
business, which was sold on September 15, 2017.
Long-term debt increased $10 million due to an
increase in the Burrard Landing Lot 2 Holdings Partnership
mortgage. The additional loan matures on November 1, 2024 and bears
interest at 4.14% compounded semi-annually.
Other long-term liabilities decreased $84
million during the quarter primarily due to a remeasurement of the
Company’s defined benefit plan related to the effect of experience
adjustments due to changes in demographic assumptions. The
cost and related accrued benefit obligation of the Company’s
non-registered pension plans are determined using actuarial
valuations. The actuarial valuations involve estimates and
actuarial assumptions including discount rates and rate of
compensation increase (financial assumptions) as well as mortality
rates and retirement rates (demographic assumptions). Due to the
long-term nature of the non-registered pension plans, such
estimates are subject to significant uncertainty. Remeasurements
related to the effect of experience adjustments arise when the
non-registered pension plans’ experience differs from the
experience expected using the actuarial assumptions, such as
mortality and retirement rates.
Shareholders’ equity decreased $144 million due
to a decrease in retained earnings of $351 million and contributed
surplus of $2 million, which was offset by an increase in share
capital of $137 million and accumulated other comprehensive income
of $73 million. Share capital increased due to the issuance of
5,055,652 Class B non-voting participating shares (“Class B
Non-Voting Shares”) under the Company’s option plan and Dividend
Reinvestment Plan (“DRIP”). Retained earnings decreased due to
dividends of $301 million and current year loss of $50
million. Accumulated other comprehensive loss decreased due
to the re-measurement recorded on employee benefit plans and a
change in unrealized fair value of derivatives.
As at March 31, 2018, there were 480,180,535
Class B Non-Voting Shares, 10,012,393 Series A Shares, 1,987,607
Series B Shares and 22,420,064 Class A Shares issued and
outstanding. As at March 31, 2018, 10,395,580 Class B Non-Voting
Shares were issuable on exercise of outstanding options. Shaw is
traded on the Toronto and New York stock exchanges and is included
in the S&P/TSX 60 Index (Trading Symbols: TSX – SJR.B,
SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more
information, please visit www.shaw.ca.
Liquidity and capital
resources
In the six-month period ended February 28, 2018,
the Company generated $187 million of free cash flow. Shaw used its
free cash flow along with proceeds on issuance of Class B
Non-Voting Shares of $27 million, proceeds from the sale of the
Shaw Tracking business of $18 million, and cash on hand to pay
common share dividends of $190 million, and fund the net working
capital change of $247 million.
As at February 28, 2018, the Company had $278
million of cash on hand and its $1.5 billion fully undrawn bank
credit facility. The facility is used for working capital and
general corporate purposes.
As at February 28, 2018, the net debt leverage
ratio for the Company is 2.0x, which is up slightly from 1.9x as at
August 31, 2017. Having regard to prevailing competitive,
operational and capital market conditions, the Board of Directors
has determined that having this ratio in the range of 2.0 to 2.5x
would be optimal leverage for the Company in the current
environment. Should the ratio fall below this, other than on a
temporary basis, the Board may choose to recapitalize back into
this optimal range. The Board may also determine to increase the
Company’s debt above these levels to finance specific strategic
opportunities such as a significant acquisition or repurchase of
Class B Non-Voting Participating Shares in the event that pricing
levels were to drop precipitously.
The Company calculates net debt leverage ratio as
follows1:
| (millions
of Canadian dollars) |
February 28, 2018 |
August 31, 2017 |
| Current
portion of Long-Term Debt |
1 |
|
2 |
|
| Long-Term
Debt |
4,311 |
|
4,298 |
|
| 50% of
Outstanding Preferred Shares |
147 |
|
147 |
|
|
Cash |
(278 |
) |
(507 |
) |
|
(A) Net Debt2 |
4,181 |
|
3,940 |
|
| Operating
income before restructuring costs and amortization |
2,011 |
|
1,997 |
|
|
Corus Dividends |
91 |
|
88 |
|
|
(B) Adjusted operating income before restructuring costs
and amortization2 |
2,102 |
|
2,085 |
|
|
(A/B) Net debt leverage ratio |
2.0x |
|
1.9x |
|
(1) The following contains a description of
the Company’s use of non-IFRS financial measures provides a
reconciliation to the nearest IFRS measure or provides a reference
to such reconciliation. (2) These financial measures do not
have standard definitions prescribed by IFRS and therefore may not
be comparable to similar measures disclosed by other companies and
have not been presented as an alternative to liquidity prescribed
by IFRS.
The Company issued Class B Non-Voting Shares
from treasury under its DRIP which resulted in cash savings and
incremental Class B Non-Voting Shares of $54 million and $106
million, during the three and six months periods ending February
28, 2018, respectively.
Shaw’s credit facilities are subject to
customary covenants which include maintaining minimum or maximum
financial ratios.
|
|
|
Covenant Limit |
|
Shaw Credit Facilities |
|
|
|
Total Debt to Operating Cash Flow (1) Ratio |
|
< 5.00:1 |
|
Operating Cash Flow (1) to Fixed Charges (2) Ratio |
|
> 2.00:1 |
(1) Operating Cash Flow, for the purposes
of the covenants, is calculated as net earnings before interest
expense, depreciation, amortization and current and deferred income
taxes, excluding profit or loss from investments accounted for on
an equity basis, for the most recently completed fiscal quarter
multiplied by four, plus cash dividends and other cash
distributions received in the most recently completed four fiscal
quarters from investments accounted for on an equity
basis.(2) Fixed Charges are defined as the aggregate interest
expense for the most recently completed fiscal quarter multiplied
by four.
As at February 28, 2018, Shaw is in compliance
with these covenants and based on current business plans, the
Company is not aware of any condition or event that would give rise
to non-compliance with the covenants over the life of the
borrowings.
Based on the aforementioned financing
activities, available credit facilities and forecasted free cash
flow, the Company expects to have sufficient liquidity to fund
operations, obligations, working capital requirements, including
maturing debt, during the upcoming fiscal year. On a longer-term
basis, Shaw expects to generate free cash flow and have borrowing
capacity sufficient to finance foreseeable future business plans
and refinance maturing
debt.
Cash Flow from Operations
Operating Activities
| |
Three months ended February 28, |
|
Six months ended February 28, |
| (millions of Canadian dollars) |
2018 |
2017 |
Change % |
|
2018 |
|
2017 |
|
Change % |
| Funds flow from continuing operations |
(26) |
397 |
(>100.0) |
|
358 |
|
786 |
|
(54.5) |
| Net change in non-cash balances related to operations |
229 |
25 |
>100.0 |
|
212 |
|
(112 |
) |
>100.0 |
| Operating activities of
discontinued operations |
- |
23 |
(100.0) |
|
(2 |
) |
34 |
|
(>100.0) |
| |
203 |
445 |
(54.4) |
|
568 |
|
708 |
|
(19.8) |
For the three months ended February 28, 2018,
funds flow from operating activities decreased over the comparable
period in fiscal 2018 primarily due to lower net income from
continuing operations, which was partially offset by an increase in
net change in non-cash balances related to operations. The
net change in non-cash balances related to operations fluctuated
over the comparative period due to changes in accounts receivable
and other current asset balances, and the timing of payment of
current income taxes payable and accounts payable and accrued
liabilities.
Investing Activities
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Decrease |
|
2018 |
|
2017 |
|
Decrease |
|
Cash flow used in investing activities |
(290 |
) |
(344 |
) |
54 |
|
(640 |
) |
(645 |
) |
5 |
For the three months ended February 28, 2018,
the cash used in investing activities decreased over the comparable
period in fiscal 2018 due primarily to lower investing activities
of discontinued operations, as well as higher equity income of an
associate as compared to the prior year. This was slightly offset
by higher cash outlays for inventory, capital and intangible
expenditures during the three months ended February 28,
2018.
Financing Activities
The changes in financing activities during the
comparative periods were as follows:
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
| Bank
loans – net borrowings (repayments) |
10 |
|
299 |
|
|
10 |
|
298 |
|
| Bank
facility arrangement costs |
- |
|
(3 |
) |
|
- |
|
(3 |
) |
|
Dividends |
(96 |
) |
(97 |
) |
|
(194 |
) |
(195 |
) |
| Issuance
of Class B Non-Voting Shares |
6 |
|
27 |
|
|
27 |
|
30 |
|
|
Financing activities of discontinued operations |
- |
|
4 |
|
|
- |
|
22 |
|
|
|
(80 |
) |
230 |
|
|
(157 |
) |
152 |
|
Capital Resources
There has been no material change in the
Company’s capital resources, including commitments for capital
expenditures, between August 31, 2017 and February 28, 2018.
Accounting standards
The MD&A included in the Company’s August
31, 2017 Annual Report outlined critical accounting policies,
including key estimates and assumptions that management has made
under these policies, and how they affect the amounts reported in
the Consolidated Financial Statements. The MD&A also describes
significant accounting policies where alternatives exist. See
“Critical Accounting Policies and Estimates” in the Company’s
Management Discussion and Analysis for the year ended August 31,
2017. The condensed interim consolidated financial statements
follow the same accounting policies and methods of application as
the most recent annual consolidated financial statements except as
described below.
Standards and amendments to standards issued but not yet
effective
The Company has not yet adopted certain
standards and amendments that have been issued but are not yet
effective. The following pronouncements are being assessed to
determine their impact on the Company’s results and financial
position.
- IFRS 15 Revenue from Contracts with Customers, was issued in
May 2014 and replaces IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements
for the Construction of Real Estate, IFRIC 18 Transfers of Assets
from Customers and SIC-31 Revenue—Barter Transactions Involving
Advertising Services. The new standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods
or services to customers in an amount that reflects the
consideration expected to be received in exchange for those goods
or services. The principles are to be applied in the following five
steps: (1) identify the contract(s) with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue
when (or as) the entity satisfies a performance obligation. The
application of IFRS 15 will impact the Company’s reported results,
including the classification and timing of revenue recognition and
the treatment of costs incurred to obtain contracts with customers.
IFRS 15 requires the estimation of total consideration to be
received over the contract term at contract inception, and the
allocation of that consideration to performance obligations in the
contract, typically based on the relative stand-alone selling price
of each obligation. IFRS 15 also requires that incremental
costs to obtain a contract with a customer (for example,
commissions) be capitalized and amortized into operating expenses
over time. The Company currently expenses such costs as incurred.
The Company’s financial position will also be impacted by the
adoption of IFRS 15, with new contract asset and contract liability
categories recognized to reflect differences between the timing of
revenue recognition and the actual billing of those goods and
services to customers. While similar differences are recognized
currently, IFRS 15 introduces additional requirements and
disclosures specific to contracts with customers. Shaw
continues to evaluate the impacts of IFRS 15 and preparations are
underway for the adoption of the new standard. Initial
planning and scoping efforts were conducted during fiscal 2017,
with ongoing development of the required accounting policies,
significant judgments and estimates, processes, information systems
and internal controls expected to continue throughout the Company’s
2018 fiscal year. In connection with these development
efforts, the Company also expects a significant historical data
gathering initiative will be required to identify and account for
multi-year contracts with customers at the date of adoption.
At this stage in the Company’s IFRS 15 implementation process, it
is not possible to make reasonable quantitative estimates of the
effects of the new standard. We expect to continue our testing and
data gathering initiative through the end of fiscal 2018 and to
disclose the estimated financial impacts of the impact of IFRS 15
in our 2018 annual report. The new standard is effective for annual
periods beginning on or after January 1, 2018, which for the
Company will be the annual period commencing September 1, 2018 and
must be applied either retrospectively or on a modified
retrospective basis for all contracts that are not complete as at
that date. The Company continues to evaluate the adoption
approach in conjunction with its assessment of the expected impacts
of adoption.
- IFRS 16 Leases requires entities to recognize lease assets and
lease obligations on the balance sheet. For lessees, IFRS 16
removes the classification of leases as either operating leases or
finance leases, effectively treating all leases as finance leases.
Certain short-term leases (less than 12 months) and leases of
low-value are exempt from the requirements and may continue to be
treated as operating leases. Lessors will continue with a dual
lease classification model. Classification will determine how and
when a lessor will recognize lease revenue, and what assets would
be recorded. As the Company has significant contractual obligations
currently being recognized as operating leases, we anticipate that
the application of IFRS 16 will result in a material increase to
both assets and liabilities and material changes to the timing of
the recognition of expenses associated with the lease arrangements
although at this stage in the Company’s IFRS 16 implementation
process, it is not possible to make reasonable quantitative
estimates of the effects of the new standard. The standard may be
applied retroactively or using a modified retrospective approach
for annual periods commencing January 1, 2019, with early adoption
permitted if IFRS 15 Revenue from Contracts with Customers has been
adopted. The Company will evaluate the adoption approach in
conjunction with its assessment of the expected impacts of
adoption.
Change in accounting policy
In September 2017, the IFRS Interpretations
Committee (“the Committee”) published a summary of its agenda
decision regarding accounting for interest and penalties related to
income taxes, which is not specifically addressed by IFRS
Standards. Although the Committee decided not to add this issue to
its standard-setting agenda, the Committee noted if an entity
considers a particular amount payable or receivable for interest
and penalties to be an income tax, then the entity applies IAS 12
Income Taxes to that amount. If an entity does not apply IAS 12 to
a particular amount payable or receivable for interest and
penalties, it applies IAS 37 Provisions, Contingent Liabilities and
Contingent Assets. As such, the Company retrospectively
changed its accounting policy for the accounting of interest and
penalties related to income taxes to be in line with the Committee
decision. The change of accounting policy did not have a
significant impact on the previously reported consolidated
financial statements.
Related party transactions
The Company’s transactions with related parties
are discussed in its Management’s Discussion and Analysis for the
year ended August 31, 2017 under “Related Party Transactions” and
under Note 27 of the Consolidated Financial Statements of the
Company for the year ended August 31, 2017. There has been no
material change in the Company’s transactions with related parties
between August 31, 2017 and February 28, 2018.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2017 and February 28, 2018.
See “Known Events, Trends, Risks and Uncertainties – Interest
Rates, Foreign Exchange Rates and Capital Markets” in the Company’s
Management’s Discussion and Analysis for the year ended August 31,
2017 and the section entitled “Risk Management” under Note 28 of
the Consolidated Financial Statements of the Company for the year
ended August 31, 2017.
Risks and uncertainties
In the quarter, the Company introduced TBT, a
multi-year initiative designed to reinvent Shaw’s operating model
to better meet the changing tastes and expectations of consumers
and businesses by reducing staff, optimizing the use of resources,
and maintaining and ultimately improving customer service. Three
key elements of TBT are to: 1) shift customer interactions to
digital platforms; 2) drive more self-install and self-serve; and,
3) streamline the organization that builds and services our
network. As part of the TBT initiative, the Company also plans to
reduce input costs, consolidate functions, and streamline
processes, which is expected to create operational improvements
across the business allowing it to evolve into a more efficient
organization.
There is an overall risk that the TBT initiative
may not be completed in a timely and cost-effective manner to yield
the expected results and benefits or result in a leaner, more
integrated and agile company with improved efficiencies and
execution to better meet its consumers needs and expectations
(including the products and services offered to its customers).
Specifically, there is a risk that the Company may not be able to:
(i) establish and continue to upgrade a digital platform that will
effectively engage customers digitally; (ii) successfully
adopt a digital platform that will yield the expected results and
benefits, including maintaining the quality of customer service,
protecting the security of customer information, and coordinating
the delivery of product and service offerings; (iii) deploy
programs that will result in customers using the self-serve
functions and electing to self-install the Company’s products and
services; and (iv) consolidate and streamline the functions and
processes of the divisions responsible for building and servicing
its networks. The realization of any of these risks may have a
material adverse effect on Shaw, its operations and/or financial
results.
As a first step in the TBT, the VDP was offered
to eligible employees. The outcome of the program had approximately
3,300 Shaw employees accepting the VDP package representing
approximately 25% of all employees. As part of the program design,
the majority of customer-facing employees (i.e., Customer Care,
Retail, Sales) were not eligible to participate in the VDP. A
large portion of employees who elected to participate in the VDP
are in functions that will be addressed through the aforementioned
key elements of the TBT and Shaw has control over the timing of
employee departures across the Company through an actively managed,
orderly transition over the next 18 months. In select
functions, the Company determined that some employees will
transition over a 24-month period, an extension from the 18-month
period initially expected. Approximately 1,200 employees will be
exiting before the end of fiscal 2018. For a detailed discussion of
the restructuring charge, anticipated annual cost reduction, and
VDP related cost reductions in fiscal 2018, see “Introduction.”
With approximately 3,300 employees accepting the
VDP package, there is a risk that the Company may not be able to:
(i) complete the employee exits with minimal impact on business
operations within the anticipated timeframes and for the budgeted
amounts, (ii) replace or outsource the functions performed by
certain key employees that have accepted the VDP package in a
manner that aligns with customer expectations which may have a
material adverse effect on the Company’s business operations, (iii)
continue to operate the business in the normal course, and maintain
or improve customer services, (iv) maintain employee morale as a
result of the organizational changes, staff and cost reductions;
(v) ensure that the staff reductions will reduce costs, and achieve
the financial goals, cost competitiveness and profitability
required to be attractive to investors. In addition, there can be
no assurance that restructuring costs of the VDP will be limited to
the budgeted amounts or that the expected annualized cost
reductions from the VDP (including reductions in operating and
capital expenditures), and the VDP related cost reductions in
fiscal 2018 will be realized within the expected time frames or at
all. The realization of any of these risks may have a material
adverse effect on Shaw, its operations and/or financial
results.
Other significant risks and uncertainties
affecting the Company and its business are discussed in the
Company’s MD&A for the fiscal year ended August 31, 2017 under
“Known Events, Trends, Risks and Uncertainties”.
| CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited) |
| |
|
(millions of Canadian dollars) |
|
February 28, 2018 |
August 31, 2017 |
| |
|
|
|
|
ASSETS |
|
|
|
|
Current |
|
|
|
| Cash |
|
278 |
507 |
| Accounts
receivable |
|
254 |
286 |
| Inventories |
|
133 |
109 |
| Other current
assets [note 5] |
|
230 |
155 |
|
Assets held for sale [note 3] |
|
- |
61 |
| |
|
895 |
1,118 |
| Investments and other
assets [notes 14 and 15] |
|
947 |
937 |
| Property, plant and
equipment |
|
4,476 |
4,344 |
| Other long-term assets
[note 14] |
|
297 |
255 |
| Deferred income tax
assets |
|
4 |
4 |
| Intangibles |
|
7,443 |
7,435 |
| Goodwill |
|
280 |
280 |
|
|
|
14,342 |
14,373 |
| |
|
|
|
| LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
Current |
|
|
|
| Accounts payable
and accrued liabilities |
|
855 |
913 |
| Provisions [note
6] |
|
283 |
76 |
| Income taxes
payable |
|
75 |
151 |
| Unearned
revenue |
|
209 |
211 |
| Current portion
of long-term debt [notes 9 and 14] |
|
1 |
2 |
| Liabilities held
for sale [note 3] |
|
- |
39 |
|
|
|
1,423 |
1,392 |
| Long-term debt [notes 9
and 14] |
|
4,310 |
4,298 |
| Other long-term
liabilities [notes 7 and 16] |
|
30 |
114 |
| Provisions [note
6] |
|
267 |
67 |
| Deferred credits |
|
473 |
490 |
| Deferred
income tax liabilities |
|
1,829 |
1,858 |
| |
|
8,332 |
8,219 |
| Shareholders’
equity [notes 10 and 12] |
|
|
|
| Common and preferred
shareholders |
|
6,009 |
6,153 |
|
Non-controlling interests in subsidiaries |
|
1 |
1 |
|
|
|
6,010 |
6,154 |
|
|
|
14,342 |
14,373 |
See accompanying notes.
| CONSOLIDATED STATEMENTS OF INCOME
(LOSS)(unaudited) |
| |
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Revenue [note 4] |
1,355 |
|
1,206 |
|
|
2,604 |
|
2,422 |
|
|
Operating, general and administrative expenses [note 8] |
(854 |
) |
(703 |
) |
|
(1,622 |
) |
(1,415 |
) |
|
Restructuring costs [notes 6 and 8] |
(417 |
) |
- |
|
|
(417 |
) |
(12 |
) |
|
Amortization: |
|
|
|
|
|
|
Deferred equipment revenue |
8 |
|
10 |
|
|
17 |
|
20 |
|
|
Deferred equipment costs |
(28 |
) |
(30 |
) |
|
(58 |
) |
(61 |
) |
|
Property, plant and equipment, intangibles and other |
(231 |
) |
(213 |
) |
|
(466 |
) |
(416 |
) |
|
Operating income (loss) from continuing
operations |
(167 |
) |
270 |
|
|
58 |
|
538 |
|
|
Amortization of financing costs – long-term debt |
(1 |
) |
- |
|
|
(2 |
) |
(1 |
) |
|
Interest expense |
(63 |
) |
(69 |
) |
|
(124 |
) |
(135 |
) |
|
Equity income of an associate or joint venture |
16 |
|
9 |
|
|
46 |
|
36 |
|
|
Other gains (losses) |
(2 |
) |
(4 |
) |
|
2 |
|
(110 |
) |
|
Income (loss) from continuing operations before income
taxes |
(217 |
) |
206 |
|
|
(20 |
) |
328 |
|
|
Current income tax expense [note 4] |
42 |
|
32 |
|
|
78 |
|
68 |
|
|
Deferred income tax expense (recovery) |
(95 |
) |
24 |
|
|
(54 |
) |
16 |
|
|
Net income (loss) from continuing operations |
(164 |
) |
150 |
|
|
(44 |
) |
244 |
|
|
Loss from discontinued operations, net of tax [note 3] |
- |
|
(3 |
) |
|
(6 |
) |
(7 |
) |
|
Net income (loss) |
(164 |
) |
147 |
|
|
(50 |
) |
237 |
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable
to: |
|
|
|
|
|
|
Equity shareholders |
(164 |
) |
150 |
|
|
(44 |
) |
244 |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations attributable
to: |
|
|
|
|
|
|
Equity shareholders |
- |
|
(3 |
) |
|
(6 |
) |
(7 |
) |
|
|
- |
|
(3 |
) |
|
(6 |
) |
(7 |
) |
|
|
|
|
|
|
|
|
Basic earnings (loss) per share [note 11] |
|
|
|
|
|
|
Continuing operations |
(0.33 |
) |
0.31 |
|
|
(0.10 |
) |
0.49 |
|
|
Discontinued operations |
- |
|
(0.01 |
) |
|
(0.01 |
) |
(0.01 |
) |
|
|
(0.33 |
) |
0.30 |
|
|
(0.11 |
) |
0.48 |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share [note 11] |
|
|
|
|
|
|
Continuing operations |
(0.33 |
) |
0.31 |
|
|
(0.10 |
) |
0.49 |
|
|
Discontinued operations |
- |
|
(0.01 |
) |
|
(0.01 |
) |
(0.01 |
) |
|
|
(0.33 |
) |
0.30 |
|
|
(0.11 |
) |
0.48 |
|
See accompanying notes.
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (unaudited) |
| |
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Net income (loss) |
(164 |
) |
147 |
|
|
(50 |
) |
237 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) [note 12] |
|
|
|
|
|
|
Items that may subsequently be reclassified to
income: |
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
(1 |
) |
(1 |
) |
|
3 |
|
1 |
|
|
Adjustment for hedged items recognized in the period |
1 |
|
- |
|
|
2 |
|
(1 |
) |
|
Share of other comprehensive income (loss) of associates |
6 |
|
2 |
|
|
5 |
|
10 |
|
|
Discontinued operations: |
|
|
|
|
|
|
Exchange differences on translation of a foreign operation |
- |
|
(13 |
) |
|
- |
|
14 |
|
|
Exchange differences on translation of US denominated
debt hedging a foreign operation |
- |
|
6 |
|
|
- |
|
(6 |
) |
|
|
6 |
|
(6 |
) |
|
10 |
|
18 |
|
|
Items that will not subsequently be reclassified to
income: |
|
|
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
|
|
Continuing operations |
74 |
|
- |
|
|
63 |
|
17 |
|
|
Discontinued operations |
- |
|
- |
|
|
- |
|
- |
|
|
|
80 |
|
(6 |
) |
|
73 |
|
35 |
|
|
Comprehensive income (loss) |
(84 |
) |
141 |
|
|
23 |
|
272 |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
| Equity
shareholders |
(84 |
) |
141 |
|
|
23 |
|
272 |
|
|
Non-controlling interests in subsidiaries |
- |
|
- |
|
|
- |
|
- |
|
|
|
(84 |
) |
141 |
|
|
23 |
|
272 |
|
See accompanying notes.
| CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(unaudited) |
|
|
| Six months
ended February 28, 2018 |
|
|
Attributable to equity shareholders |
|
|
| [millions
of Canadian dollars] |
Share capital |
Contributed surplus |
Retained earnings |
Accumulated other comprehensive loss |
Total |
Equity attributable to non-controlling interests |
Total equity |
| Balance as at September
1, 2017 |
4,090 |
30 |
|
2,164 |
|
(131 |
) |
6,153 |
|
1 |
6,154 |
|
| Net income (loss) |
- |
- |
|
(50 |
) |
- |
|
(50 |
) |
- |
(50 |
) |
| Other
comprehensive income |
- |
- |
|
- |
|
73 |
|
73 |
|
- |
73 |
|
| Comprehensive income
(loss) |
- |
- |
|
(50 |
) |
73 |
|
23 |
|
- |
23 |
|
| Dividends |
- |
- |
|
(196 |
) |
- |
|
(196 |
) |
- |
(196 |
) |
| Dividend reinvestment
plan |
106 |
- |
|
(106 |
) |
- |
|
- |
|
- |
- |
|
| Shares issued under
stock option plan |
31 |
(4 |
) |
- |
|
- |
|
27 |
|
- |
27 |
|
| Share-based
compensation |
- |
2 |
|
- |
|
- |
|
2 |
|
- |
2 |
|
|
Balance as at February 28, 2018 |
4,227 |
28 |
|
1,812 |
|
(58 |
) |
6,009 |
|
1 |
6,010 |
|
| Six months
ended February 28, 2017 |
|
|
Attributable to equity shareholders |
|
|
| [millions
of Canadian dollars] |
Share capital |
Contributed surplus |
Retained earnings |
Accumulated other comprehensive loss |
Total |
Equity attributable to non-controlling interests |
Total equity |
| Balance as at September
1, 2016 |
3,799 |
42 |
|
1,908 |
|
(52 |
) |
5,697 |
|
1 |
5,698 |
|
| Net income |
- |
- |
|
237 |
|
- |
|
237 |
|
- |
237 |
|
| Other
comprehensive income |
- |
- |
|
- |
|
35 |
|
35 |
|
- |
35 |
|
| Comprehensive
income |
- |
- |
|
237 |
|
35 |
|
272 |
|
- |
272 |
|
| Dividends |
- |
- |
|
(197 |
) |
- |
|
(197 |
) |
- |
(197 |
) |
| Dividend reinvestment
plan |
99 |
- |
|
(99 |
) |
- |
|
- |
|
- |
- |
|
| Shares issued under
stock option plan |
37 |
(6 |
) |
- |
|
- |
|
31 |
|
- |
31 |
|
| Share-based
compensation |
- |
2 |
|
- |
|
- |
|
2 |
|
- |
2 |
|
|
Balance as at February 28, 2017 |
3,935 |
38 |
|
1,849 |
|
(17 |
) |
5,805 |
|
1 |
5,806 |
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
| |
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
Funds flow from continuing operations [note
13] |
(26 |
) |
397 |
|
|
358 |
|
786 |
|
| Net
change in non-cash balances related to continuing operations |
229 |
|
25 |
|
|
212 |
|
(112 |
) |
|
Operating activities of discontinued operations |
- |
|
23 |
|
|
(2 |
) |
34 |
|
|
|
203 |
|
445 |
|
|
568 |
|
708 |
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
Additions to property, plant and equipment [note 4] |
(270 |
) |
(259 |
) |
|
(602 |
) |
(485 |
) |
|
Additions to equipment costs (net) [note 4] |
(10 |
) |
(15 |
) |
|
(26 |
) |
(38 |
) |
|
Additions to other intangibles [note 4] |
(21 |
) |
(19 |
) |
|
(56 |
) |
(45 |
) |
| Net
additions to inventories |
(9 |
) |
(13 |
) |
|
(24 |
) |
(15 |
) |
| Proceeds
on sale of discontinued operations [note 3] |
- |
|
- |
|
|
18 |
|
- |
|
| Net
additions to investments and other assets |
19 |
|
(9 |
) |
|
42 |
|
(18 |
) |
| Proceeds
on disposal of property, plant and equipment |
1 |
|
- |
|
|
8 |
|
- |
|
|
Investing activities of discontinued operations |
- |
|
(29 |
) |
|
- |
|
(44 |
) |
|
|
(290 |
) |
(344 |
) |
|
(640 |
) |
(645 |
) |
|
FINANCING ACTIVITIES |
|
|
|
|
|
| Increase
in long-term debt |
10 |
|
300 |
|
|
10 |
|
300 |
|
| Debt
repayments [note 9] |
- |
|
(1 |
) |
|
- |
|
(2 |
) |
| Bank
facility arrangement costs |
- |
|
(3 |
) |
|
- |
|
(3 |
) |
| Issue of
Class B Non-Voting Shares [note 10] |
6 |
|
27 |
|
|
27 |
|
30 |
|
|
Dividends paid on Class A Shares and Class B Non-Voting Shares |
(94 |
) |
(95 |
) |
|
(190 |
) |
(191 |
) |
|
Dividends paid on Preferred Shares |
(2 |
) |
(2 |
) |
|
(4 |
) |
(4 |
) |
|
Financing activities of discontinued operations |
- |
|
4 |
|
|
- |
|
22 |
|
|
|
(80 |
) |
230 |
|
|
(157 |
) |
152 |
|
|
Effect of currency translation on cash
balances |
- |
|
- |
|
|
- |
|
- |
|
|
Increase (decrease) in cash |
(167 |
) |
331 |
|
|
(229 |
) |
215 |
|
| Cash,
beginning of the period |
445 |
|
289 |
|
|
507 |
|
405 |
|
|
Cash of continuing operations, end of the
period |
278 |
|
620 |
|
|
278 |
|
620 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
February 28, 2018 and 2017[all amounts
in millions of Canadian dollars, except share and per share
amounts]
1. CORPORATE
INFORMATION
Shaw Communications Inc. (the “Company”) is a
diversified Canadian connectivity company whose core operating
business is providing: Cable telecommunications, Satellite video
services and data networking to residential customers, businesses
and public-sector entities (“Wireline”); and wireless services for
voice and data communications (“Wireless”). The Company’s shares
are listed on the Toronto Stock Exchange (“TSX”), TSX Venture
Exchange and New York Stock Exchange.
2. BASIS OF PRESENTATION AND
ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial
statements of the Company have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and in
compliance with International Accounting Standard (“IAS”) 34
Interim Financial Reporting as issued by the International
Accounting Standards Board (“IASB”).
The condensed interim consolidated financial
statements of the Company for the three and six months ended
February 28, 2018 were approved by the Board of Directors and
authorized for issue on April 11, 2018.
Basis of presentation
These condensed interim consolidated financial
statements have been prepared primarily under the historical cost
convention except as detailed in the significant accounting
policies disclosed in the Company’s consolidated financial
statements for the year ended August 31, 2017 and are expressed in
millions of Canadian dollars unless otherwise indicated. The
condensed interim consolidated statements of income are presented
using the nature classification for expenses.
Certain comparative figures have been
reclassified to conform to the current period’s presentation.
The notes presented in these condensed interim
consolidated financial statements include only significant events
and transactions occurring since the Company’s last fiscal year end
and are not fully inclusive of all matters required to be disclosed
by IFRS in the Company’s annual consolidated financial statements.
As a result, these condensed interim consolidated financial
statements should be read in conjunction with the Company’s
consolidated financial statements for the year ended August 31,
2017.
The condensed interim consolidated financial
statements follow the same accounting policies and methods of
application as the most recent annual consolidated financial
statements except as noted below.
Standards and amendments to standards issued but not yet
effective
The Company has not yet adopted certain
standards and amendments that have been issued but are not yet
effective. The following pronouncements are being assessed to
determine their impact on the Company’s results and financial
position.
- IFRS 15 Revenue from Contracts with Customers, was issued in
May 2014 and replaces IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements
for the Construction of Real Estate, IFRIC 18 Transfers of Assets
from Customers and SIC-31 Revenue—Barter Transactions Involving
Advertising Services. The new standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods
or services to customers in an amount that reflects the
consideration expected to be received in exchange for those goods
or services. The principles are to be applied in the following five
steps: (1) identify the contract(s) with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue
when (or as) the entity satisfies a performance obligation. The
application of IFRS 15 will impact the Company’s reported results,
including the classification and timing of revenue recognition and
the treatment of costs incurred to obtain contracts with customers.
IFRS 15 requires the estimation of total consideration to be
received over the contract term at contract inception, and the
allocation of that consideration to performance obligations in the
contract, typically based on the relative stand-alone selling price
of each obligation. IFRS 15 also requires that incremental
costs to obtain a contract with a customer (for example,
commissions) be capitalized and amortized into operating expenses
over time. The Company currently expenses such costs as
incurred. The Company’s financial position will also
be impacted by the adoption of IFRS 15, with new contract asset and
contract liability categories recognized to reflect differences
between the timing of revenue recognition and the actual billing of
those goods and services to customers. While similar differences
are recognized currently, IFRS 15 introduces additional
requirements and disclosures specific to contracts with
customers. Shaw continues to evaluate the impacts of IFRS 15
and preparations are underway for the adoption of the new standard.
Initial planning and scoping efforts were conducted during fiscal
2017, with ongoing development of the required accounting policies,
significant judgments and estimates, processes, information systems
and internal controls expected to continue throughout the Company’s
2018 fiscal year. In connection with these development
efforts, the Company also expects a significant historical data
gathering initiative will be required to identify and account for
multi-year contracts with customers at the date of adoption.
At this stage in the Company’s IFRS 15 implementation process, it
is not possible to make reasonable quantitative estimates of the
effects of the new standard. We expect to continue our testing and
data gathering initiative through the end of fiscal 2018 and to
disclose the estimated financial impacts of the impact of IFRS 15
in our 2018 annual report. The new standard is effective for annual
periods beginning on or after January 1, 2018, which for the
Company will be the annual period commencing September 1, 2018 and
must be applied either retrospectively or on a modified
retrospective basis for all contracts that are not complete as at
that date. The Company continues to evaluate the adoption
approach in conjunction with its assessment of the expected impacts
of adoption.
- IFRS 16 Leases requires entities to recognize lease assets and
lease obligations on the balance sheet. For lessees, IFRS 16
removes the classification of leases as either operating leases or
finance leases, effectively treating all leases as finance leases.
Certain short-term leases (less than 12 months) and leases of
low-value are exempt from the requirements and may continue to be
treated as operating leases. Lessors will continue with a dual
lease classification model. Classification will determine how and
when a lessor will recognize lease revenue, and what assets would
be recorded. As the Company has significant contractual
obligations currently being recognized as operating leases, we
anticipate that the application of IFRS 16 will result in a
material increase to both assets and liabilities and material
changes to the timing of the recognition of expenses associated
with the lease arrangements although at this stage in the Company’s
IFRS 16 implementation process, it is not possible to make
reasonable quantitative estimates of the effects of the new
standard. The standard may be applied retroactively or using a
modified retrospective approach for annual periods commencing
January 1, 2019, which for the Company will be the annual period
commencing September 1, 2019, with early adoption permitted if IFRS
15 Revenue from Contracts with Customers has been adopted. The
Company will evaluate the adoption approach in conjunction with its
assessment of the expected impacts of adoption.
Discontinued operations
The Company reports financial results for
discontinued operations separately from continuing operations to
distinguish the financial impact of disposal transactions from
ongoing operations. Discontinued operations reporting occurs
when the disposal of a component or a group of components of the
Company represents a strategic shift that will have a major impact
on the Company’s operations and financial results, and where the
operations and cash flows can be clearly distinguished,
operationally and for financial reporting purposes, from the rest
of the Company.
The results of discontinued operations are
excluded from both continuing operations and business segment
information in the interim consolidated financial statements and
the notes to the interim consolidated financial statements, unless
otherwise noted, and are presented net of tax in the statement of
income for the current and comparative periods. Refer to Note
3 Discontinued Operations for further information regarding the
Company’s discontinued operations.
Change in accounting policy
In September 2017, the IFRS Interpretations
Committee (“the Committee”) published a summary of its agenda
decision regarding accounting for interest and penalties related to
income taxes, which is not specifically addressed by IFRS
Standards. Although the Committee decided not to add this issue to
its standard-setting agenda, the Committee noted if an entity
considers a particular amount payable or receivable for interest
and penalties to be an income tax, then the entity applies IAS 12
Income Taxes to that amount. If an entity does not apply IAS 12 to
a particular amount payable or receivable for interest and
penalties, it applies IAS 37 Provisions, Contingent Liabilities and
Contingent Assets. As such, the Company retrospectively
changed its accounting policy for the accounting of interest and
penalties related to income taxes to be in line with the Committee
decision. The change of accounting policy did not have a
significant impact on the previously reported consolidated
financial statements.
3. DISCONTINUED OPERATIONS
Shaw Tracking
In the third quarter of fiscal 2017, the Company
entered into an agreement to sell a group of assets comprising the
operations of Shaw Tracking, a fleet tracking operation reported
within the Company’s Wireline segment, for proceeds of
approximately USD $20, net of working capital adjustments.
Accordingly, the operating results and operating cash flows of the
Tracking business are presented as discontinued operations separate
from the Company’s continuing operations.
The transaction closed on September 15, 2017 and
the Company recognized a loss on the divestiture within income from
discontinued operations as follows:
|
|
February 28, 2018 |
|
|
Proceeds on disposal, net of transaction costs of $nil |
18 |
|
|
Net assets disposed |
(22 |
) |
|
|
(4 |
) |
|
Income taxes |
2 |
|
|
Loss on divestiture, net of tax |
(6 |
) |
The assets and liabilities disposed of were as
follows:
|
|
$ |
|
|
Accounts receivable |
6 |
|
|
Inventories |
5 |
|
|
Other current assets |
1 |
|
|
Other long-term assets |
25 |
|
|
Goodwill |
24 |
|
|
|
61 |
|
|
Accounts payable and accrued liabilities |
8 |
|
|
Deferred credits |
33 |
|
|
Deferred income tax liabilities |
(2 |
) |
|
|
22 |
|
A reconciliation of the major classes of line
items related to Shaw Tracking constituting income from
discontinued operations, net of tax, as presented in the
consolidated statements of income is as follows:
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
2017 |
|
|
2018 |
|
2017 |
|
|
Revenue |
- |
8 |
|
|
1 |
|
16 |
|
|
|
|
|
|
|
|
|
Operating, general and administrative
expenses |
|
|
|
|
|
|
Employee salaries and benefits |
- |
2 |
|
|
- |
|
4 |
|
|
Purchases of goods and services |
- |
4 |
|
|
1 |
|
8 |
|
|
|
- |
6 |
|
|
1 |
|
12 |
|
|
Amortization |
- |
(1 |
) |
|
- |
|
(1 |
) |
|
Income from discontinued operations before
tax |
- |
3 |
|
|
- |
|
5 |
|
|
Income taxes |
- |
1 |
|
|
- |
|
1 |
|
|
Income from discontinued operations, net of tax, before
divestiture |
- |
2 |
|
|
- |
|
4 |
|
|
Loss on divestiture, net of tax |
- |
- |
|
|
(6 |
) |
- |
|
|
Income (loss) from discontinued operations, net of
tax |
- |
2 |
|
|
(6 |
) |
4 |
|
ViaWest
In the fourth quarter of fiscal 2017, the
Company entered into an agreement to sell 100% of its wholly owned
subsidiary ViaWest, Inc. (“ViaWest”) for proceeds of approximately
USD $1.68 billion. Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services segment are presented as discontinued operations separate
from the Company’s continuing operations. Prior period financial
information has been reclassified to present the Business
Infrastructure Services division of the Company as a discontinued
operation.
A reconciliation of the major classes of line
items related to ViaWest constituting income from discontinued
operations, net of tax, as presented in the consolidated statements
of income is as follows:
| |
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
2017 |
|
|
2018 |
2017 |
|
|
Revenue |
- |
91 |
|
|
- |
180 |
|
|
Eliminations(1) |
- |
(1 |
) |
|
- |
(1 |
) |
|
|
- |
90 |
|
|
- |
179 |
|
|
|
|
|
|
|
|
|
Operating, general and administrative
expenses |
|
|
|
|
|
|
Employee salaries and benefits |
- |
22 |
|
|
- |
44 |
|
|
Purchases of goods and services |
- |
33 |
|
|
- |
68 |
|
|
|
- |
55 |
|
|
- |
112 |
|
|
Eliminations(1) |
- |
(1 |
) |
|
- |
(1 |
) |
|
|
- |
36 |
|
|
- |
68 |
|
|
Amortization |
- |
32 |
|
|
- |
64 |
|
| Interest
on long-term debt |
- |
9 |
|
|
- |
18 |
|
|
Amortization of transaction costs |
- |
1 |
|
|
- |
1 |
|
|
Loss from discontinued operations before tax |
- |
(6 |
) |
|
- |
(15 |
) |
| Income
taxes |
- |
(1 |
) |
|
- |
(4 |
) |
|
Loss from discontinued operations, net of tax |
- |
(5 |
) |
|
- |
(11 |
) |
(1) Eliminations relate to intercompany
transactions between continuing and discontinued operations. The
costs are included in continuing operations as they continue to be
incurred subsequent to the disposition.
4. BUSINESS SEGMENT INFORMATION
The Company’s chief operating decision makers
are the CEO, President and CFO and they review the operating
performance of the Company by segments which comprise Wireline and
Wireless. The chief operating decision makers utilize operating
income before restructuring costs and amortization for each segment
as a key measure in making operating decisions and assessing
performance. As a result of the restructuring undertaken in 2017,
the Company reorganized and integrated its management structure,
previously separated in the Consumer and Business Network Services
segments, into a combined Wireline segment, as costs are
increasingly inseparable between these segments. There was no
change to the Wireless operating segment.
The Wireline segment provides Cable
telecommunications services including Video, Internet, Wi-Fi,
Phone, Satellite Video and data networking through a national
fibre-optic backbone network to Canadian consumers, North American
businesses and public-sector entities. The Wireless segment,
provides wireless services for voice and data communications
serving customers in Ontario, British Columbia and Alberta.
The previously reported Business Infrastructure
Services segment was comprised primarily of the ViaWest operations
and as a result, the majority of this segment is now reported in
discontinued operations. The remaining operations and their results
are now included within the Wireline segment.
Both of the Company’s reportable segments are
substantially located in Canada. Information on operations by
segment is as follows:
Operating information
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Revenue |
|
|
|
|
|
|
Wireline |
1,066 |
|
1,066 |
|
|
2,141 |
|
2,144 |
|
|
Wireless |
|
|
|
|
|
|
Service |
142 |
|
117 |
|
|
273 |
|
234 |
|
|
Equipment and other |
148 |
|
24 |
|
|
192 |
|
45 |
|
|
|
290 |
|
141 |
|
|
465 |
|
279 |
|
|
|
1,356 |
|
1,207 |
|
|
2,606 |
|
2,423 |
|
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
|
(2 |
) |
(1 |
) |
|
|
1,355 |
|
1,206 |
|
|
2,604 |
|
2,422 |
|
|
|
|
|
|
|
|
|
Operating income before restructuring costs and
Amortization |
|
|
|
|
|
|
Wireline |
465 |
|
474 |
|
|
911 |
|
948 |
|
|
Wireless |
36 |
|
29 |
|
|
71 |
|
59 |
|
|
|
501 |
|
503 |
|
|
982 |
|
1,007 |
|
|
Restructuring costs |
(417 |
) |
- |
|
|
(417 |
) |
(12 |
) |
|
Amortization |
(251 |
) |
(233 |
) |
|
(507 |
) |
(457 |
) |
|
Operating income |
(167 |
) |
270 |
|
|
58 |
|
538 |
|
|
|
|
|
|
|
|
|
Current taxes |
|
|
|
|
|
|
Operating |
43 |
|
40 |
|
|
87 |
|
81 |
|
|
Other/non-operating |
(1 |
) |
(8 |
) |
|
(9 |
) |
(13 |
) |
|
|
42 |
|
32 |
|
|
78 |
|
68 |
|
Capital expenditures
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Capital expenditures accrual basis |
|
|
|
|
|
|
Wireline |
220 |
|
199 |
|
|
439 |
|
379 |
|
|
Wireless |
56 |
|
53 |
|
|
173 |
|
118 |
|
|
|
276 |
|
252 |
|
|
612 |
|
497 |
|
|
|
|
|
|
|
|
|
Equipment costs (net of revenue) |
|
|
|
|
|
|
Wireline |
12 |
|
17 |
|
|
29 |
|
41 |
|
|
|
|
|
|
|
|
|
Capital expenditures and equipment costs
(net) |
|
|
|
|
|
|
Wireline |
232 |
|
216 |
|
|
468 |
|
420 |
|
|
Wireless |
56 |
|
53 |
|
|
173 |
|
118 |
|
|
|
288 |
|
269 |
|
|
641 |
|
538 |
|
|
|
|
|
|
|
|
|
Reconciliation to Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
Additions to property, plant and equipment |
270 |
|
259 |
|
|
602 |
|
485 |
|
|
Additions to equipment costs (net) |
10 |
|
15 |
|
|
26 |
|
38 |
|
|
Additions to other intangibles |
21 |
|
19 |
|
|
56 |
|
45 |
|
| Total of
capital expenditures and equipment costs (net)
per Consolidated Statements of Cash Flows |
301 |
|
293 |
|
|
684 |
|
568 |
|
|
Increase/decrease in working capital and other
liabilities related to capital expenditures |
(12 |
) |
(26 |
) |
|
(37 |
) |
(33 |
) |
| Decrease
in customer equipment financing receivables |
1 |
|
2 |
|
|
2 |
|
3 |
|
|
Less: Proceeds on disposal of property, plant and
equipment |
(2 |
) |
- |
|
|
(8 |
) |
- |
|
|
Total capital expenditures and equipment costs (net) reported
by segments |
288 |
|
269 |
|
|
641 |
|
538 |
|
5. OTHER CURRENT ASSETS
|
|
February 28, 2018 |
August
31, 2017 |
|
|
$ |
$ |
|
Prepaid expenses |
108 |
99 |
|
Wireless handset receivables(1) |
122 |
56 |
|
|
230 |
155 |
(1) As described in the revenue and
expenses accounting policy detailed in the significant accounting
policies disclosed in the Company’s consolidated financial
statements for the year ended August 31, 2017, these amounts relate
to the current portion of wireless handset discounts
receivable.
6. PROVISIONS
| |
Asset retirement obligations |
Restructuring
(1) |
Other |
Total |
|
|
$ |
$ |
$ |
$ |
| Balance as at September
1, 2017 |
60 |
7 |
|
76 |
|
143 |
|
| Additions |
1 |
417 |
|
16 |
|
434 |
|
| Accretion |
1 |
- |
|
- |
|
1 |
|
| Reversal |
- |
- |
|
(5 |
) |
(5 |
) |
|
Payments |
- |
(23 |
) |
- |
|
(23 |
) |
|
Balance as at February 28, 2018 |
62 |
401 |
|
87 |
|
550 |
|
| |
|
|
|
|
| |
|
|
|
|
| Current |
- |
7 |
|
69 |
|
76 |
|
|
Long-term |
60 |
- |
|
7 |
|
67 |
|
| Balance
as at September 1, 2017 |
60 |
7 |
|
76 |
|
143 |
|
| |
|
|
|
|
| Current |
- |
203 |
|
80 |
|
283 |
|
|
Long-term |
62 |
198 |
|
7 |
|
267 |
|
|
Balance as at February 28, 2018 |
62 |
401 |
|
87 |
|
550 |
|
(1) During fiscal 2017, the Company
restructured certain operations within the Wireline segment and
announced a realignment to integrate certain Consumer/Business
operations and Freedom Mobile. The majority of the remaining costs
are expected to be paid in the current year. During the
second quarter of the current year, the Company offered a voluntary
departure program to a group of eligible employees as part of a
total business transformation initiative. In connection with
the restructuring, the Company recorded $417 primarily related to
severance and employee related costs in respect of the approximate
3,300 affected employees. A total of $18 has been paid in fiscal
2018. The remaining costs are expected to be paid out within the
next 24 months.
7. OTHER LONG-TERM LIABILITIES
| |
February 28, 2018 |
August
31, 2017 |
|
|
$ |
$ |
| Pension liabilities
[note 16] |
22 |
99 |
| Post retirement
liabilities |
5 |
5 |
|
Other |
3 |
10 |
|
|
30 |
114 |
8. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
AND RESTRUCTURING COSTS
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
2017 |
|
2018 |
2017 |
|
Employee salaries and benefits |
606 |
204 |
|
805 |
413 |
|
Purchase of goods and services |
665 |
499 |
|
1,234 |
1,014 |
|
|
1,271 |
703 |
|
2,039 |
1,427 |
9. LONG-TERM DEBT
|
|
February 28, 2018 |
|
August 31, 2017 |
|
|
Long-term debt at amortized cost |
Adjustmentfor finance costs |
Long-term debt repayable at maturity |
|
Long-term debt at amortized cost |
Adjustment for finance costs |
Long-term debt repayable at maturity |
|
|
$ |
$ |
$ |
|
$ |
$ |
$ |
|
Corporate |
|
|
|
|
|
|
|
| Cdn fixed
rate senior notes- |
|
|
|
|
|
|
|
|
5.65% due October 1, 2019 |
1,248 |
2 |
1,250 |
|
1,247 |
3 |
1,250 |
| 5.50% due
December 7, 2020 |
499 |
1 |
500 |
|
498 |
2 |
500 |
| 3.15% due
February 19, 2021 |
298 |
2 |
300 |
|
298 |
2 |
300 |
| 4.35% due
January 31, 2024 |
498 |
2 |
500 |
|
498 |
2 |
500 |
| 3.80% due
March 1, 2027 |
298 |
2 |
300 |
|
298 |
2 |
300 |
|
6.75% due November 9, 2039 |
1,419 |
31 |
1,450 |
|
1,419 |
31 |
1,450 |
|
|
4,260 |
40 |
4,300 |
|
4,258 |
42 |
4,300 |
|
Other |
|
|
|
|
|
|
|
| Freedom
Mobile - other |
1 |
- |
1 |
|
2 |
- |
2 |
| Burrard
Landing Lot 2 Holdings Partnership(1) |
50 |
- |
50 |
|
40 |
- |
40 |
|
Total consolidated debt |
4,311 |
40 |
4,351 |
|
4,300 |
42 |
4,342 |
|
Less current portion (2) |
1 |
- |
1 |
|
2 |
- |
2 |
|
|
4,310 |
40 |
4,350 |
|
4,298 |
42 |
4,340 |
(1) In February 2018, the Partnership
refinanced its debt. The Partnership received an additional
mortgage loan of $30 and used the proceeds to loan excess funds to
each of its partners, of which the Company received $10. The
additional loan matures on November 1, 2024 and bears interest at
4.14% compounded semi-annually.(2) Current portion of
long-term debt includes amounts due within one year in respect of
Freedom Mobile’s finance lease obligations. 10. SHARE
CAPITAL
Changes in share capital during the six months
ended February 28, 2018 are as follows:
|
|
Class A Shares |
|
Class B Non-Voting Shares |
|
Series APreferred
Shares |
|
Series BPreferred
Shares |
|
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
August 31, 2017 |
22,420,064 |
2 |
|
474,350,861 |
3,795 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
| Issued
upon stock option plan exercises |
- |
- |
|
1,140,600 |
31 |
|
- |
- |
|
- |
- |
| Issued
pursuant to dividend reinvestment plan |
- |
- |
|
3,915,052 |
106 |
|
- |
- |
|
- |
- |
|
February 28, 2018 |
22,420,064 |
2 |
|
479,406,513 |
3,932 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
11. EARNINGS PER SHARE
Earnings per share calculations are as
follows:
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
|
Numerator for basic and diluted earnings per share
($) |
|
|
|
|
|
| Net
income (loss) from continuing operations |
(164 |
) |
150 |
|
|
(44 |
) |
244 |
|
|
Deduct: dividends on Preferred Shares |
(2 |
) |
(2 |
) |
|
(4 |
) |
(4 |
) |
| Net
income (loss) attributable to common shareholders from continuing
operations |
(166 |
) |
148 |
|
|
(48 |
) |
240 |
|
| Net loss
from discontinued operations |
- |
|
(3 |
) |
|
(6 |
) |
(7 |
) |
|
Net loss from discontinued operations attributable to common
shareholders |
- |
|
(3 |
) |
|
(6 |
) |
(7 |
) |
|
Net income (loss) attributable to common shareholders |
(166 |
) |
145 |
|
|
(54 |
) |
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (millions of shares) |
|
|
|
|
|
| Weighted
average number of Class A Shares and Class B Non-Voting Shares for
basic earnings per share |
500 |
|
489 |
|
|
499 |
|
488 |
|
|
Effect of dilutive securities (1) |
1 |
|
1 |
|
|
1 |
|
1 |
|
|
Weighted average number of Class A Shares and Class B Non-Voting
Shares for diluted earnings per share |
501 |
|
490 |
|
|
500 |
|
489 |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share ($) |
|
|
|
|
|
|
Continuing operations |
(0.33 |
) |
0.31 |
|
|
(0.10 |
) |
0.49 |
|
|
Discontinued operations |
- |
|
(0.01 |
) |
|
(0.01 |
) |
(0.01 |
) |
|
Attributable to common shareholders |
(0.33 |
) |
0.30 |
|
|
(0.11 |
) |
0.48 |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share ($) |
|
|
|
|
|
|
Continuing operations |
(0.33 |
) |
0.31 |
|
|
(0.10 |
) |
0.49 |
|
|
Discontinued operations |
- |
|
(0.01 |
) |
|
(0.01 |
) |
(0.01 |
) |
|
Attributable to common shareholders |
(0.33 |
) |
0.30 |
|
|
(0.11 |
) |
0.48 |
|
(1) The earnings per share calculation does
not take into consideration the potential dilutive effect of
certain stock options since their impact is anti-dilutive.
For the three and six months ended February 28, 2018, 3,771,466
(2017 – 3,443,718) and 2,696,312 (2017 – 3,475,941) options were
excluded from the diluted earnings per share calculation,
respectively.
12. OTHER COMPREHENSIVE INCOME AND ACCUMULATED
OTHER COMPREHENSIVE LOSS
Components of other comprehensive income and the
related income tax effects for the six months ended February 28,
2018 are as follows:
|
|
Amount$ |
Income taxes$ |
Net$ |
|
Items that may subsequently be reclassified to
income |
|
|
|
|
Continuing operations: |
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
4 |
(1 |
) |
3 |
|
Adjustment for hedged items recognized in the period |
3 |
(1 |
) |
2 |
|
Share of other comprehensive income of associates |
5 |
- |
|
5 |
|
|
12 |
(2 |
) |
10 |
|
Items that will not be subsequently be reclassified to
income |
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
Continuing operations |
86 |
(23 |
) |
63 |
|
|
98 |
(25 |
) |
73 |
Components of other comprehensive income and the
related income tax effects for the three months ended February 28,
2018 are as follows:
|
|
Amount$ |
Income taxes$ |
Net$ |
|
Items that may subsequently be reclassified to
income |
|
|
|
|
Continuing operations: |
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
(2 |
) |
1 |
|
(1 |
) |
|
Adjustment for hedged items recognized in the period |
2 |
|
(1 |
) |
1 |
|
|
Share of other comprehensive income of associates |
6 |
|
- |
|
6 |
|
|
|
6 |
|
- |
|
6 |
|
|
Items that will not be subsequently be reclassified to
income |
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
Continuing operations |
101 |
|
(27 |
) |
74 |
|
|
|
107 |
|
(27 |
) |
80 |
|
Components of other comprehensive income and the
related income tax effects for the six months ended February 28,
2017 are as follows:
|
|
Amount$ |
Income taxes$ |
Net$ |
|
Items that may subsequently be reclassified to
income |
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
2 |
|
(1 |
) |
1 |
|
|
Adjustment for hedged items recognized in the period |
(2 |
) |
1 |
|
(1 |
) |
|
Share of other comprehensive income of associates |
10 |
|
- |
|
10 |
|
|
Exchange differences on translation of a foreign
operation |
14 |
|
- |
|
14 |
|
|
Exchange differences on translation of US denominated debt
hedging a foreign operation |
(6 |
) |
- |
|
(6 |
) |
|
|
18 |
|
- |
|
18 |
|
|
Items that will not be subsequently be reclassified to
income |
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
Continuing operations |
23 |
|
(6 |
) |
17 |
|
|
|
41 |
|
(6 |
) |
35 |
|
Components of other comprehensive loss and the
related income tax effects for the three months ended February 28,
2017 are as follows:
|
|
Amount$ |
Income taxes$ |
Net$ |
|
Items that may subsequently be reclassified to
income |
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
(1 |
) |
- |
(1 |
) |
|
Adjustment for hedged items recognized in the period |
- |
|
- |
- |
|
|
Share of other comprehensive income of associates |
2 |
|
- |
2 |
|
|
Exchange differences on translation of a foreign
operation |
(13 |
) |
- |
(13 |
) |
|
Exchange differences on translation of US denominated debt
hedging a foreign operation |
6 |
|
- |
6 |
|
|
|
(6 |
) |
- |
(6 |
) |
Accumulated other comprehensive loss is comprised of the
following:
|
|
February 28,
2018$ |
|
August 31, 2017$ |
|
Items that may subsequently be reclassified to
income |
|
|
|
|
Continuing operations: |
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash flow hedges |
(3 |
) |
|
(8 |
) |
|
Share of other comprehensive income of associates |
13 |
|
|
8 |
|
|
|
|
|
|
|
Items that will not be subsequently reclassified to
income |
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
Continuing operations |
(68 |
) |
|
(131 |
) |
|
|
(58 |
) |
|
(131 |
) |
13. STATEMENTS OF CASH FLOWS
Disclosures with respect to the Consolidated Statements of Cash
Flows are as follows:
(i) Funds flow from continuing operations
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
| Net
income (loss) from continuing operations |
(164 |
) |
150 |
|
|
(44 |
) |
244 |
|
|
Adjustments to reconcile net income to funds flow from
operations: |
|
|
|
|
|
|
Amortization |
252 |
|
233 |
|
|
508 |
|
458 |
|
|
Deferred income tax expense |
(95 |
) |
24 |
|
|
(54 |
) |
16 |
|
|
Share-based compensation |
1 |
|
1 |
|
|
2 |
|
2 |
|
|
Defined benefit pension plans |
4 |
|
1 |
|
|
8 |
|
4 |
|
|
Equity income of an associate or joint venture |
(16 |
) |
(9 |
) |
|
(46 |
) |
(36 |
) |
|
Provision for investment loss |
- |
|
- |
|
|
- |
|
107 |
|
|
Other |
(8 |
) |
(3 |
) |
|
(16 |
) |
(9 |
) |
|
Funds flow from continuing operations |
(26 |
) |
397 |
|
|
358 |
|
786 |
|
(ii) Interest and income taxes paid and interest received and
classified as operating activities are as follows:
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
2017 |
|
2018 |
2017 |
|
Interest paid |
28 |
35 |
|
117 |
136 |
|
Income taxes paid (net of refunds) |
51 |
61 |
|
164 |
189 |
|
Interest received |
1 |
1 |
|
2 |
2 |
(iii) Non-cash transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
|
2018 |
2017 |
|
2018 |
2017 |
|
Issuance of Class B Non-Voting Shares: |
|
|
|
|
|
|
Dividend reinvestment plan |
54 |
50 |
|
106 |
99 |
14. FAIR VALUE
Fair value estimates are made at a specific
point in time, based on relevant market information and information
about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant
judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the
estimates.
Financial instruments
The fair value of financial instruments has been determined as
follows:
(i) Current assets and current
liabilities
The fair value of financial instruments included
in current assets and current liabilities approximates their
carrying value due to their short-term nature.
(ii) Investments and other assets
and other long-term assets
The fair value of publicly traded investments is
determined by quoted market prices. Investments in private entities
which do not have quoted market prices in an active market and
whose fair value cannot be readily measured are carried at cost. No
published market exists for such investments. These equity
investments have been made as they are considered to have the
potential to provide future benefit to the Company and accordingly,
the Company has no current intention to dispose of these
investments in the near term. The fair value of long-term
receivables approximates their carrying value as they are recorded
at the net present values of their future cash flows, using an
appropriate discount rate.
(iii) Long-term debt
The carrying value of long-term debt is at
amortized cost based on the initial fair value as determined at the
time of issuance or at the time of a business acquisition. The fair
value of publicly traded notes is based upon current trading
values. The fair value of finance lease obligations is determined
by discounting future cash flows using a rate for loans with
similar terms, conditions and maturity dates. The carrying value of
bank credit facilities approximates fair value as the debt bears
interest at rates that fluctuate with market values. Other notes
and debentures are valued based upon current trading values for
similar instruments.
(iv) Other long-term liabilities
The fair value of contingent consideration
arising from a business acquisition is determined by calculating
the present value of the probability weighted assessment of the
likelihood that revenue targets will be met and the estimated
timing of such payments.
(v) Derivative financial
instruments
The fair value of US currency forward purchase
contracts is determined by an estimated credit-adjusted
mark-to-market valuation using observable forward exchange rates at
the end of reporting periods and contract forward rates.
The carrying values and estimated fair values of long-term debt
and a contingent liability are as follows:
|
|
February 28, 2018 |
February 28, 2017 |
|
|
Carrying value |
Estimatedfair value |
Carryingvalue |
Estimatedfair value |
|
|
$ |
$ |
$ |
$ |
|
Liabilities |
|
|
|
|
| Long-term
debt (including current portion) (1) |
4,311 |
4,839 |
5,948 |
6,617 |
|
Contingent liability(2) |
- |
- |
1 |
1 |
(1) Level 2 fair value – determined by valuation
techniques using inputs based on observable market data, either
directly or indirectly, other than quoted prices.
(2) Level 3 fair value – determined by valuation
techniques using inputs that are not based on observable market
data.
15. INVESTMENTS AND OTHER ASSETS
Corus Entertainment Inc.
In connection with the sale of the Media
division to Corus in 2016, the Company received 71,364,853 Corus
Class B non-voting participating shares (the “Corus B Consideration
Shares”) representing approximately 37% of Corus’ total issued
equity of Class A and Class B shares. The Company agreed to retain
approximately one third of its Corus B Consideration Shares for 12
months post-closing, a second one third for 18 months post-closing
and the final one third for 24 months post-closing. The Company
also agreed to have its Corus B Consideration Shares participate in
Corus’ dividend reinvestment plan while subject to these retention
periods until September 1, 2017. For the three and six months
ended February 28, 2018, the Company received dividends of $23
(2017 - $22) and $46 (2017 - $43) from Corus, of which $nil (2017 -
$20) and $nil (2017 - $41) were reinvested in additional Corus
Class B shares, respectively. At February 28, 2018, the
Company owned 80,630,383 (2017 – 77,537,826) Corus Class B shares
having a fair value of $645 (2017 - $982) and representing 39%
(2017 – 38%) of Corus’ total issued equity of Class A and Class B
shares. The Company’s weighted average ownership of Corus for the
months ended February 28, 2018 was 39% (2017 – 38%). As of
September 1, 2017, the Company’s Corus B Consideration Shares no
longer participate in Corus’ dividend reinvestment plan.
Summary financial information for Corus and
reconciliation with the carrying amount of the investment in the
unaudited interim condensed consolidated balance sheets is as
follows:
|
|
|
February 28, 2018 |
August 31, 2017 |
|
Current assets |
|
|
525 |
|
525 |
|
|
Non-current assets |
|
|
5,469 |
|
5,543 |
|
| Current
liabilities |
|
|
(580 |
) |
(604 |
) |
|
Non-current liabilities |
|
|
(2,786 |
) |
(2,864 |
) |
|
Net assets |
|
|
2,628 |
|
2,600 |
|
|
Less: non-controlling interests |
|
|
(156 |
) |
(159 |
) |
|
|
|
|
2,472 |
|
2,441 |
|
|
|
|
|
|
|
|
Carrying amount of the investment |
|
|
902 |
|
897 |
|
|
|
|
|
|
|
| Summarized statement of earnings of Corus: |
|
|
|
| |
Three months ended February 28, |
Six months ended February 28, |
|
| 2018 |
2017 |
2018 |
2017 |
|
| Revenue |
369 |
368 |
827 |
836 |
|
| |
|
|
|
|
|
| Net income attributable to: |
|
|
|
|
|
| Shareholders |
40 |
25 |
118 |
96 |
|
| Non-controlling interest |
6 |
7 |
13 |
17 |
|
| |
46 |
32 |
131 |
113 |
|
| Other comprehensive income (loss), attributable to
shareholders |
16 |
6 |
13 |
26 |
|
| Comprehensive income |
62 |
38 |
144 |
139 |
|
| |
|
|
|
|
|
| Equity income from associates(1) |
16 |
9 |
46 |
36 |
|
| Other comprehensive income (loss) from equity accounted
associates(1) |
6 |
2 |
5 |
10 |
|
| |
22 |
11 |
51 |
46 |
|
(1) The Company’s share of income and other
comprehensive income reflect the weighted average proportion of
Corus net income and other comprehensive income attributable to
shareholders for the three and six months periods ended February
28, 2018 and 2017.
16. EMPLOYEE BENEFIT
PLANS
Defined benefit pension
plans
The Company has two non-registered retirement
plans for designated executives and senior executives. The
following is a summary of the accrued benefit liabilities
recognized in the statement of financial position.
|
|
February 28, 2018 |
August 31, 2017 |
|
|
$ |
$ |
|
Non-registered plans |
|
|
|
Accrued benefit obligation |
455 |
532 |
|
Fair value of plan assets |
433 |
433 |
|
Accrued benefit liabilities and deficit |
22 |
99 |
The plans expose the Company to a number of
risks, of which the most significant are as follows:
(i) Volatility in market conditions: The accrued benefit
obligations are calculated using discount rates with reference to
bond yields closely matching the term of the estimated cash flows
while many of the assets are invested in other types of
assets. If plan assets underperform these yields, this will
result in a deficit. Changing market conditions in conjunction with
discount rate volatility will result in volatility of the accrued
benefit liabilities. To minimize some of the investment risk, the
Company has established long-term funding targets where the time
horizon and risk tolerance are specified.
(ii) Selection of accounting assumptions: The calculation of the
accrued benefit obligations involves projecting future cash flows
of the plans over a long-time frame. This means that assumptions
used can have a material impact on the statements of financial
position and comprehensive income because in practice, future
experience of the plans may not be in line with the selected
assumptions.
Non-registered pension
plans
The Company provides a supplemental executive
retirement plan (“SERP”) for certain of its senior executives.
Benefits under this plan are based on the employees’ length of
service and their highest three-year average rate of eligible
pensionable earnings during their years of service. In 2012, the
Company closed the plan to new participants and amended the plan to
freeze base salary levels at August 31, 2012 for purposes of
determining eligible pensionable earnings. Employees are not
required to contribute to this plan.
The Company provides an executive retirement
plan (“ERP”) for certain executives not covered by the SERP.
Benefits under this plan are comprised of defined contribution and
defined benefit components and are based on the employees’ length
of service as well as final average earnings during their years of
service. Employees are not required to contribute to this
plan.
The table below shows the change in benefit obligation and
funding status and the fair value of plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP |
ERP |
Total |
|
|
|
|
|
|
$ |
$ |
$ |
|
Accrued benefit obligation, as at September 1, 2017 |
|
|
|
|
518 |
|
14 |
532 |
|
|
Current service cost |
|
|
|
|
4 |
|
4 |
8 |
|
|
Remeasurements: |
|
|
|
|
|
|
|
|
Effect of experience adjustments(1) |
|
|
|
|
(85 |
) |
- |
(85 |
) |
|
Accrued benefit obligation, as at February 28, 2018 |
|
|
|
|
437 |
|
18 |
455 |
|
| Fair
value of plan assets, as at September 1, 2017 |
|
|
|
|
420 |
|
13 |
433 |
|
|
Employer contributions |
|
|
|
|
- |
|
- |
- |
|
|
Fair value of plan assets, as at February 28, 2018 |
|
|
|
|
420 |
|
13 |
433 |
|
|
Accrued benefit liability and plan deficit, as at February 28,
2018 |
|
|
|
|
17 |
|
5 |
22 |
|
(1) In the second quarter of the fiscal
year, a remeasurement related to the effect of experience
adjustments of $85 million was recognized to reflect the decrease
in the accrued benefit obligation due to demographic experience in
the quarter. The cost and related accrued benefit obligation of the
Company’s non-registered pension plans are determined using
actuarial valuations. The actuarial valuations involve estimates
and actuarial assumptions including discount rates and rate of
compensation increase (financial assumptions) as well as mortality
rates and retirement rates (demographic assumptions). Due to the
long-term nature of the non-registered pension plans, such
estimates are subject to significant uncertainty. Remeasurements
related to the effect of experience adjustments arise when the
non-registered pension plans’ experience differs from the
experience expected using the actuarial assumptions.
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